8th Sep 2023 10:31
(Alliance News) - Berkeley Group Holdings PLC's trading update on Friday "surprised nobody" according to AJ Bell's Russ Mould as the housebuilder reported a 35% drop in the value of underlying private sales reservations.
For Mould, the update showed "just how tough" the housing market is right now in the UK. Nonetheless, Berkeley reaffirmed its full-year guidance on Friday, expecting to deliver "at least" GBP1.05 billion in pretax profit across the current and next financial years, which end on April 30.
In financial 2023, it had reported a pretax profit of GBP604.0 million. For the current financial year, profit is expected to be split broadly evenly between the first and second halves.
Aarin Chiekrie, equity analyst at Hargreaves Lansdown, said Berkeley's resilient pricing, due to the constrained supply of new-build and second-hand homes, was behind the housebuilder's confidence to reiterate its guidance across the coming two financial years.
However, Chiekrie noted that recent interest rate hikes in the UK, pushing mortgage costs higher, have caused a "relative lack of urgency" among new buyers with the firm's private sales reservations dropping 35%.
"In terms of the sales market, enquiries have stayed at similar levels over the last four months, but the value of underlying private sales reservations is some 35% below last year's rate, reflecting the elevated macro-economic and political volatility," Berkeley said.
UBS said the "sequential deterioration" is consistent with others in the sector reporting sales rates over recent months and, as a result, expects a "broadly neutral" reaction to the update.
The Swiss bank currently holds Berkeley at 'buy' with a price target of 4,580 pence. It said on Friday that the shares look "attractive" at a 1.2 times price-to-tangible net asset value and around 7% dividend yield, before considering share buybacks.
Richard Hunter, head of markets at interactive investor, said market consensus currently has Berkeley shares as a "strong hold". For him, this demonstrated that though investor sentiment has "not yet turned a corner" regarding the wider UK housing sector, there is "some degree of comfort" with Berkeley.
"In some ways, Berkeley is a different beast to many of its competitors, with a potential edge coming from its mix of an exposure to London and the South East, higher-end properties and the regeneration of brownfield sites in which it is well accomplished," he explained.
However, the ii analyst warned that Berkeley is "far from being immune" to the wider issues of mortgage availability and affordability, planning bottlenecks, and uncertain consumer propensity to buy.
HL's Chiekrie agreed: "Looking bigger picture, Berkeley's London focus offers something different to peers, and demand in the capital's likely to remain more robust than other areas of the country. Add to the mix that the UK housing market's suffering from a fundamental supply shortage, and the long-term picture doesn't look so bleak. But in the short term, there's plenty of stormy clouds for Berkeley to weather."
Shares in Berkeley were down 0.9% at 3,938.00p on Friday morning in London. Over the past 12 months, the stock is up 13%.
By Heather Rydings, Alliance News senior economics reporter
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