5th Sep 2018 10:40
LONDON (Alliance News) - Barratt Developments PLC on Wednesday kept a confident outlook following a record rise in annual profit and despite political and economic uncertainty in the UK.
Shares in the FTSE 100-listed housebuilder remained flat at 535.60 pence on Wednesday.
The company's pretax profit rose 9.2% to GBP835.5 million in the year to the end of June from GBP765.1 million reported a year earlier, as revenue grew by 4.8% to GBP4.87 billion from GBP4.65 billion.
Barratt's annual pretax profit outperformed consensus estimates of GBP831 million, however, revenue came in slightly below market estimate of GBP4.89 billion.
The rise in annual revenue was attributed to strong growth in core Housebuilding division, which recorded revenue of GBP4.87 billion, up from GBP4.65 billion the prior year. The Commercial Developments unit reported GBP47.8 million in revenue, down from GBP61.1 million.
Barratt declared a final dividend of 17.9 pence per share and a special dividend of 17.3p, bringing the total payout to 43.8p, up 5.0% from 41.7p.
The housebuilder delivered 17,579 homes in 2018 financial year, up 1.1% year-on-year from 17,395. Average selling prices increased by 5.0% to GBP288,900 from GBP275,200 the prior year, benefiting from product mix changes and house price inflation.
Private completions increased by 1.0% to 13,439, affordable completions declined 3.0% to 3,241, and joint venture completions, in which Barratt had an interest, were up 20% at 899.
The company's share of profits from joint ventures & associates decreased to GBP18.5 million compared to GBP26.5 million secured a year ago, reflecting planned site build programmes.
Looking forward, Barratt expects to grow volumes between 3% and 5% per annum over the medium-term, as well as a minimum of 23% gross margin on new land and 25% on return of capital equity.
Shore Capital Markets said that this was a change from the housebuilder's previous targets of 2-3% volume growth and a target gross margin of 20% minimum.
The broker said that the new targets would have a positive impact, but it would take three to four years to have any real impact, as by then the housing market will have changed materially should the Help-To Buy scheme go through changes.
"It is good to see Barratt aiming for higher margins and it does need to do this because it has been so far out of line with the peers and having lower margins has made it more vulnerable to falling house prices. The latter is not going to change in the near term and we still see this and the true position of the balance sheet as making Barratt riskier than it peers," said analyst Robin Hardy.
The company opened a new Cambridgeshire division to support its volume aspirations and aims to grow capacity to 20,000 annual completions under its current operational structure.
In the first nine weeks of the new financial year, the company said its sales rose 11% to GBP3.05 billion as of Sunday compared to GBP2.75 billion as of September 3, 2017. The sales growth was mostly driven by a 35% rise in Affordable development sales and 40% growth in joint ventures.
Net private reservations per average week were marginally lower at 264 from 265, leading to net private per active outlet per average week reaching 0.75 from 0.74.
The number of completions also improved to 12,648 units from 12,160 units, respectively.
Market-wise, Barratt said that uncertainty hovers over the UK's looming departure from the EU, and rapid ministerial changes in the Ministry of Housing, Communities & Local Government.
Also, a report from the Sunday Telegraph over the weekend suggested the UK government is considering scrapping the Help To Buy equity loan scheme for new housing after running a watered down version from the current scheduled end in March 2021 through the current general election in May 2022.
Despite this, Barratt Developments said it remains confident in the fundamentals of the housing sector and its own business.
"Market conditions remain good with a wide availability of attractive mortgage finance, which, alongside Help to Buy, continues to support robust consumer demand. The group is well positioned with a substantial year-end net cash balance, healthy forward sales position and an experienced management team," said Chairman John Allan.
For the year ending in June 2019, consensus estimates from Reuters forecast pretax profit of GBP862.5 million and revenue of GBP4.99 billion for Barratt.
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