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Barratt Developments' investors may want to temper enthusiasm

Never underestimate the lengths a chancellor will venture to prop up the UK housing market. It is a point to consider for anyone contemplating just how long the furious rise in activity will continue. Case in point - the extension of the stamp duty break to the end of September. The tax break has reinvigorated demand and fuelled an acceleration in the rate of sales price growth to 7.1 per cent in April, according to lender Nationwide, just a sliver below the six-year peak hit in December. 

For Barratt Developments (BDEV), a booming market has prompted management to lift guidance to between 16,000 and 16,250 completions this year, up from the 15,250 to 15,750 homes expected in February. The net private reservation rate per active outlet has averaged 0.83 a week since the start of 2021, a natural jump from the anaemic rate of 0.52 recorded during the same time last year, when the market was plunged into lockdown. Yet the pace of reservations has also quickened since the second half of last year and is above 2019 levels. 

Analysts have responded accordingly, upgrading earnings forecasts not just for this year, but out to 2023. That leaves shares in Barratt trading at 1.8 times forecast tangible book value at the end of June, or 12 times forward earnings for the 2021 financial year. The former might be below a post-referendum peak multiple of 2.1, but is markedly above a 10-year average of 1.4. The latter metric is also within touching distance of the near six year-high reached in February. Investors are betting on the good times rolling, but they would do well to temper enthusiasm. 

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