Barratt Developments (BDEV) continues to reap the rewards of its heavy investment programme over the past five years. The group revealed a 61 per cent increase in operating profit to £224m at the half-year mark, on margins that were up 320 basis points to 14.2 per cent. Profit is on the rise because Barratt has sold a substantial proportion of the lower-return land acquired prior to the financial crisis. By next year around 75 per cent of the land held by the group will be higher-margin plots acquired subsequent to 2008-09.
The steady improvement in Barratt's land bank has helped drive return on capital employed (ROCE), which at 21.6 per cent is well ahead of the comparable rate of 14.2 per cent in 2013. Management believes the group is well on its way to achieving its dual targets of a gross margin of at least 20 per cent and ROCE of at least 25 per cent by November 2017. Management said that margins benefited in the half year because previous material and labour shortages have subsided, thereby driving down costs.
The group completed almost 7,000 houses during the period, a 12.5 per cent increase on the 2013 interim, and its highest rate in six years. Barratt also increased the number of new site openings by almost a fifth to 96 in total. The developer intends to open a further 90 sites in the next six months including Brooklands in Milton Keynes and the former Terry's chocolate factory in York.
At 31 December, the group had a total land bank equivalent to 4.6 years' output, up from 4.4 years in 2013. This was based on 68,947 plot completions over a 12-month period. During the first half, Barratt agreed to purchase 7,242 plots worth some £373m. The group expects to approve around 16,000 plots in the full financial year.
It's worth mentioning that the increased dividend is the second payment of the group's capital return plan, which will generate £962m for shareholders, by way of £562m in ordinary dividends and £400m in special cash payments.
Deutsche Bank expects adjusted EPS of 42.45p, up from 30.4p in 2014.
| BARRATT DEVELOPMENTS (BDEV) | ||||
|---|---|---|---|---|
| ORD PRICE: | 507p | MARKET VALUE: | £5bn | |
| TOUCH: | 506-507p | 12-MONTH HIGH: | 508p | LOW: 324p |
| DIVIDEND YIELD: | 2.3% | PE RATIO: | 13 | |
| NET ASSET VALUE: | 349p* | NEBT DEBT: | 4% | |
| Half-year to 31 Dec | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2013 | 1.3 | 120.4 | 9.5 | 3.2 |
| 2014 | 1.6 | 210.2 | 17.0 | 4.8 |
| % change | +25 | +75 | +79 | +50 |
Ex-div: 23 Apr Payment: 20 May *includes intangible assets of £892m, or 90p a share | ||||
