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Berkeley to buy back undervalued shares

Shareholders will still be paid a bumper dividend, but this will now be less the cost of any buybacks
December 5, 2016

Berkeley Group (BKG) reaffirmed its commitment to pay £16.34 in dividends by 2021, but will now pay the outstanding £10 per share through a mixture of dividends and share buybacks. This will generate better value considering that the shares are trading around the sector average in price/net asset value terms while delivering a return on equity 40 per cent above the sector average. Subject to shareholder approval, Berkeley will announce the dividend in February and August each year (the next one is 100p) less the cost of any share buybacks.

IC TIP: Buy at 2630p

Reservations were down 20 per cent from the same period last year as a result of higher stamp duty and a decision by some potential buyers to hold back. Forward sales were down from £3.25bn to £2.9bn, while the estimated gross margin from the 42,125 plots in the land bank was down from £6.1bn to £5.9bn.

A new five-year target has been announced to deliver at least £3bn in pre-tax profits in the five years beginning 1 May 2016. Sales were barely changed at 2,076, but average prices rose from £506,000 to £655,000, mainly as a result of a change in the mix, and operating margins grew from 25.5 per cent to 27.7 per cent. These numbers indicate the resilience of Berkeley's business model.

Analysts at Peel Hunt are forecasting adjusted pre-tax profits for the year to April 2017 of £757m and EPS of 402.7p (from £479.9m and 234.8p in 2016).

 

BERKELEY GROUP (BKG)
ORD PRICE:2,630pMARKET VALUE:£3.66bn
TOUCH:2,630-2,635p12-MONTH HIGH:3,788pLOW: 2,015p
DIVIDEND YIELD:see textPE RATIO:7
NET ASSET VALUE:1,414pNET  CASH:£208m

Half-yearto 31 OctTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20151.1429316790
20161.41393226see text
% change+24+34+35-

Ex-div:

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