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Barratt promises another special dividend

Return on capital reaches a 12-year high, while output is the best for nine years
September 6, 2017

To give some idea about how well housebuilders have bounced back since the financial crash, you only have to look at the dividend payout from Barratt Developments (BDEV) which, since 2013, has increased by an astonishing 1,568 per cent, when including the latest special dividend of 17.3p.

IC TIP: Buy at 604.5p

And in the year to June 2017, Barratt once again ticked all the right boxes, boosting operating margins from 15.8 per cent to 17.2 per cent, and delivering a return on capital employed of 29.8 per cent, up from 27.1 per cent a year earlier and the highest for 12 years. Completions were marginally ahead at 17,395, while total average selling prices rose by 6 per cent to £275,200. On private completions prices rose 8 per cent to £313,100. Margins were also boosted by more use of higher-margin land and the steady run-down in legacy assets (high priced land acquired before the financial crash), with 92 per cent of completions made on higher-margin land, up from 86 per cent a year earlier.

Land values remained benign, and the group continued to exceed its minimum hurdle rates on land purchases of 20 per cent gross margin and 25 per cent return on capital employed. Land purchases were down slightly from the previous year at £957.2m, equating to 18,497 plots. Unlike many housebuilders, Barratt holds a relatively short land bank, equivalent to 3.5 years of output, which helps to boost return on capital when blended with a fast build and sell model.

Improved efficiency and a more simplified range have helped to offset the pressures generated by a shortage of skilled labour. And material costs have also been kept under control, with 90 per cent of materials manufactured or assembled in the UK.  Overall build cost inflation for the year to June 2018 is expected to be around 3-4 per cent, covered easily by the rise in average selling prices.

So far, analysts at Peel Hunt are still forecasting adjusted pre-tax profits for the year to June 2018 of £818m and EPS of 66.2p, compared with £774m and 61.3p in FY2017.

BARRATT DEVELOPMENTS (BDEV)  
ORD PRICE:604.5pMARKET VALUE:£6.1bn
TOUCH:604-604.5p12-MONTH HIGH:630pLOW: 430p
DIVIDEND YIELD:4.0%PE RATIO:10
NET ASSET VALUE:427p*NET CASH:£724m
Year to 30 JunTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)**
20132.611057.72.5
20143.1639131.210.3
20153.7656645.515.1
20164.2468255.118.3
20174.6576561.324.4
% change+10+12+11+33
Ex-div:26 Oct   
Payment:20 Nov   

*Includes intangible assets of £892m, or 88p a share

**Excludes special dividends of 10p a share in 2015, 12.4p in 2016 and 17.3p in 2017