What's new:
■ Forward sales up strongly
■ Land bank set to grow
■ Planned bumper dividends remain on target
Berkeley Group's (BKG) trading update this month revealed it had boosted the quality of its land bank by securing a further eight planning consents in the four months to 28 February. These include two schemes in London - one on the Albert Embankment and the other in Hammersmith.
Three new sites have also been acquired in Finchley, Mill Hill and Maidenhead, and management remains on target to achieve 10 per cent growth in the land bank for the full year. The housebuilder stressed that there remains a shortage of housing at all pricing levels, although demand is still constrained by a tight mortgage market. Even so, forward sales are up nearly 40 per cent year on year and now stand in excess of £1.4bn.
Moreover, the group remains on target to return £568m to shareholders by 2021 through a series of special dividends. This is equivalent to £13 a share and the first 15p is due to be paid on 19 April -with a bulk of the payments starting in 2015. On a rough basis, that is equivalent to an 8 per cent yield every year for the next eight years.
Numis Securities says...
Buy. Berkeley's trading update didn't give much new information other than a strong forward sales position. And while we are leaving our 2013 and 2014 estimates unchanged - at pre-tax profit of £253m and £374m, respectively, giving EPS of 142.9p and 212.7p - we are upgrading our 2015 estimates on the strength of potential earnings growth to £491.6m and 284p. Moreover, we have also increased our share price target to 2,478p. This equates to 1.8 times December 2014's net asset value per share, which we don't see as demanding given our forecast of a 28 per cent return on capital employed.
Deutsche Bank says...
Buy. We believe that Berkeley will reap the rewards from its strong land acquisition strategy with a significant pick up in selling prices driven by its new London developments. As such, we remain comfortable with our estimates - being 30 per cent above consensus for 2014 at £382m for pre-tax profit and EPS of 201p, and 20 per cent above for 2013, at £284m and 145p. While there is no comment on the market in the statement, the company has clearly seen a robust start to the new year, and management stressed that it is on target to meet its longer-term objectives.
