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Berkeley warns profits have peaked

But the housebuilder remains highly profitable and its shareholder return programme is unaffected
June 20, 2018

Berkeley Group (BKG) delivered a strong performance in the year to April 2018 but cautioned that profits will be around one-third lower in the year in FY2019 as activity returns to more normal levels. Thereafter, the housebuilder is looking to achieve a 20 per cent pre-tax return on equity against 39.3 per cent in the last year. Importantly, its shareholder return programme remains unchanged.

IC TIP: Hold at 3964p

Sales dipped to 3,536 from 3,905 units, but average selling prices rose from £675,000 to £715,000. And with forward sales of £2.2bn, Berkeley has raised its pre-tax profit guidance for the two years to April 2019 by £75m to £1.575bn.

Berkeley’s shareholder return programme established in 2011 pledged to pay £13 per share by 2021, but this was increased to £16.34 in 2015. However, since then some of the funds have been used to buy in shares when the share price was considered to be artificially low. Shareholder returns in the year totalled £287.1m, of which £146.7m came through dividends and £140.4m through the purchase of 4m shares. Of the £139.2m to be returned in the six months to 30 September 2018, £32.2m has already been returned through share buybacks and, subject to possible additional buybacks, the dividend amount will be announced on 16 August.

Analysts at Peel Hunt are forecasting pre-tax profit for the year to April 2019 of £674m and EPS of 397p.

BERKELEY GROUP (BKG)  
ORD PRICE:3,964pMARKET VALUE:£5.32bn
TOUCH:3,963-3,965p12-MONTH HIGH:4,338pLOW: 3,164p
DIVIDEND YIELD:see textPE RATIO:7
NET ASSET VALUE:1,952pNET CASH:£687m
Year to 30 AprTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20141.62380222180
20152.12540313180
20162.05531296200
20172.72812468137
20182.70935563see text
% change-1+15+20-
Ex-div:23 Aug   
Payment:14 Sep