Berkeley Group – On Solid Foundations To Deliver Profit Guidance

Published on
  • Private sales reservations down 35%
  • Net cash of £325m expected at the end of October
  • Pre-tax profit guidance reiterated

Berkeley Group’s Earnings

Berkeley Group Holdings PLC (LON:BKG) issued a trading update covering the four months to the end of August, and we’ve seen a similar story across the rest of the housebuilders this earnings season. It looks like the recent interest rate hikes pushing up mortgage costs are causing a relative lack of urgency among new buyers as private sales reservations dropped 35%.

Pricing’s remained resilient though, due to the constrained supply of new-build and second-hand homes, giving Berkeley the confidence to reiterate its guidance for £1.05bn of pre-tax profits across the coming two financial years, weighted slightly towards the current year. That represents declines of around 10% in consecutive years.

In the meantime, Berkeley’s taking action to protect its financial resilience by carefully matching its supply with demand and completely stopping spending on new plots of land. That’s expected to keep net cash at £325m by the end of October, down around 20% since April but should be enough to help cushion the impact of lower sales in the near term.

Looking bigger picture, Berkeley’s London focus offers something different to peers, and demand in the capital’s likely to remain more robust than other areas of the country. Add to the mix that the UK housing market’s suffering from a fundamental supply shortage, and the long-term picture doesn’t look so bleak. But in the short term, there’s plenty of stormy clouds for Berkeley to weather.

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Article by Aarin Chiekrie, equity analyst at Hargreaves Lansdown