■ Strong rise in profits
■ Operating margins close to 10 per cent
■ Private completions up solidly
Barratt Developments' (BDEV) pre-tax profit rose by 73 per cent in the year to end-June 2013, to a forecast-busting £192m - according to a trading update from the housebuilder earlier this month. Moreover, management said that the operating margin looks set to grow from 8.2 per cent to 9.7 per cent - after touching 10.4 per cent in the second half. However, headline figures will be hit by an exceptional charge of £88m, relating to a refinancing announced in May, as well as impairment charges on a commercial joint venture.
Total completions rose 8 per cent to 13,663, with sales accelerating notably in the second half - up 17.9 per cent from a year earlier, boosted by the launch of the government's Help to Buy scheme in April. In fact, private sales since then have jumped 34.7 per cent and the strong momentum looks set to continue, with total forward sales up 53.6 per cent at £829.7m.
Strong cash flow helped to reduce the debt pile, too - from £167.7m to around £30m - and this was after spending £1.05bn on buying land, equating to 18,536 plots. Labour and material costs have also been held down, although finance director David Thomas admitted that costs are likely to increase in 2014 by up to 3 per cent.
Deutsche Bank says…
Buy. Barratt Developments is working towards increasing its annual output to 16,000 units and this, together with the strong pick-up in the reservation rate, has prompted us to upgrade our pre-tax profit forecast by 5 per cent to £326m for end-June 2014 and by 10 per cent to £457m for the following year. The shares currently trade on 1.3 times 2014's estimated net tangible assets, although this valuation is yet to reflect the above-sector average high-teens return on capital employed that we expect the company to achieve in 2015. We expect adjusted EPS of 14.9p for end-June 2013, rising to 26.4p in 2014, and our price target stands at 365p.
Jefferies says…
Buy. Barratt Developments' strong performance is set to continue as management has taken the decision to use Help to Buy to accelerate the volumes from its impaired land holdings. The cash will be used to reinvest in higher-margin land at what we expect to be close to the cyclical lows for land values. Furthermore, when the group achieves its target of 16,000 units, we suspect that management will then invest in new divisions. We have upgraded our forecast for 2014 pre-tax profit from £292m to £295.6m, and EPS from 23.3p to 23.8p. While, for 2015, our estimates rise from £384.6m and 31.5p, to £412.3m and 33.8p. Moreover, our price target had increased from 385p to 435p.
