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Berkeley lifts pre-tax profit by half

Despite Brexit uncertainties, Berkeley Group still expects to generate profits of over £3bn in the five years to 2021
June 21, 2017

Berkeley Group (BKG) coped rather well with the headwinds that affected trading in the year to April 2017. Reservations fell sharply in the wake of the EU referendum, but sentiment has improved somewhat since then. And the 30 per cent drop in overall housing starts in London only served to exacerbate the chronic imbalance between the supply of new homes and demand.

IC TIP: Buy at 3288p

Even so, forward reservations worth £3.25bn at the start of the financial year were down to £2.74bn by the end, but Berkeley remains on target to deliver at least £3bn in pre-tax profits over the five years ending in 2021. At the April 2017 year-end, the group was employing more than 13,000 people working on 58 live construction sites, with more than 1,600 people in formal training. This is an important consideration because skill shortages (and sterling's weakness) pushed up build costs by 6 per cent. This was more than offset by a change in the product mix that boosted average selling prices by 31 per cent to £675,000, while completions actually rose from 3,776 to 3,905. This helped to lift operating margins from 24.5 per cent to 27.8 per cent.

Excluding joint ventures, 10 new sites were added to the land bank, and total land holdings pushed up to 46,351 plots, including land without planning consent. This equates to an estimated gross development value of £6.4bn, which includes the group's half-share from joint ventures.

In December 2016, Berkeley announced that the promised 1,634p a share in dividends to be paid between 2011 and 2021 would be split between conventional dividend payments and share buybacks. Management took the decision on the basis that a post-referendum fall in the share price was excessive, and that buybacks offered shareholders better value. As a consequence, dividends are declared in August and February, the last being an interim of 85.24p a share paid on 24 March 2017. The final will be announced on 17 August.

Analysts at Peel Hunt are forecasting adjusted pre-tax profit for the year to April 2018 of £796m and EPS of 438p, rising to £737m and 405p in FY2019.

BERKELEY GROUP (BKG)
ORD PRICE:3,288pMARKET VALUE:£4.53bn
TOUCH:3,287-3,289p12-MONTH HIGH:3,421pLOW: 2,015p
DIVIDEND YIELD:see textPE RATIO:7
NET ASSET VALUE:1,552pNET CASH:£286m

Year to 30 AprTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20131.3727116074
20141.62380222180
20152.12540313180
20162.05531296200
20172.72812468see text
% change+33+53+58-

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