What's new
■ Strong cash position
■ Selective land purchases maintained
■ Signs of housing market rebounding
Berkeley Group remains one of the UK's better performing housebuilders, but it has not been possible to avoid entirely the ravages of probably the toughest trading period in living memory. Still, underlying transactions levels appear to have settled down, and are now running at around 40 per cent below historical average levels, a rate that Berkeley has adjusted to accordingly.
More recently, however, there have been signs that the housing market may have at least touched the bottom of the recent downward cycle, although the fragility of consumer sentiment and tough hurdles still facing first time buyers mean that any dawn could well turn out to be a false one. Either way, Berkeley remains on the lookout for opportunities to build its land bank, and the group admitted that around 1,800 plots on 12 new sites were acquired between May and December last year, with a further four new sites added since then.
But this is not a land grabbing exercise, and Berkeley remains very choosy about where it builds. More acquisitions seem likely though, and the group has plenty of firepower to fund further land purchases. The group remains debt free, and having started the financial year in May with cash of £284.8m, this has since been increased to £344.7m as at last October.
UBS says...
Buy. Berkeley Group already has a very strong land bank equivalent to 15 years of production at current rates. And in the first six months of the financial year it spent around £120m on 1,800 plots including a prime site in Belgravia and a 5 acre riverside site in Battersea. Even so, we have increased our net cash estimates from £240m to £330m, boosted by good working capital control and increased levels of deposits. Cash profits for the year ending April 2010 are forecast at £104m, rising to £116m in 2011, with EPS of 58.2p, rising to 64p.
Liberium says...
Buy. Berkeley continues as one of the best-performing housebuilders, with margins and return on equity well above its peers. What's more, the group has significant exposure to the London housing market where any recovery is most likely to be seen first. The quality of the land bank is also impressive, and Berkeley was the only housebuilder that did not write down the value of its land bank. And because of the land bank quality, we expect average selling prices in 2010 to be back up above where they stood in 2008. Expect pre-tax profits for 2010 of £115m and EPS of 59p.
