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Pricing Props Up Berkeley’s Profits, Ashtead’s Q1 Revenues Up 25%

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Higher sales prices are offsetting higher costs, meaning Berkeley Group Holdings PLC (LON:BKG)’s on track to meet its full year profit target. Pre-tax profit’s expected to be £600m this year, rising to £625m in 2024.

Berkeley Group – Pricing Props Up Profits, Outlook Uncertain

Forward sales rates are expected to be “marginally” ahead of last year’s £2.17bn, with the group seeing a “good level” of demand.

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Berkeley warned the operating environment remains volatile, with cost inflation running at 5-10%. Because of this Berkeley will  be more selective in buying any new land.

Around £38m of share buybacks has been completed, as part of the new £141.1m shareholder return plan. The amount to be paid as a dividend will be announced before the end of February 2023.

The shares rose 3.6% following the announcement.

Sophie Lund-Yates, Lead Equity Analyst at Hargreaves Lansdown:

“Berkeley Group has put in a resilient showing, despite soaring cost inflation which is marring the entire sector. The reason profits have been left without too much bruising is because sale prices are high enough to offset the housebuilder’s fatter bills.

This is a dynamic being seen almost across the board, but the longevity of the pattern is a question mark for Berkeley. It’s south-east focus, and more premium product, means starting prices for a Berkeley home are significantly more than for run of the mill developers.

On one hand, this makes the group more vulnerable to a prolonged recession, as a £700,000 family home in the commuter belt is precisely the sort of thing people put off committing to when things are rocky.

At the same time, these higher earners are less likely to feel the worst of the affects of a crisis, so may well prove to be a more reliable customer base.

There should be cautious optimism in the latter scenario, but the market is clearly concerned, with the shares changing hands for a bit less than the longer-term average.”

Ashtead Group - Q1 Revenues Up 25%

Ashtead Group plc (LON:AHT) had a “strong” first quarter with revenue up 25% to $2.3bn and adjusted profit before tax up 29% to $555m. The performance was driven by a 26% rise in equipment rental income, with contributions from both price and volume increases.

Free cash flow was down to $91m from $420m reflecting a doubling of capital expenditure to $667m. In the period Ashtead spent $119m on share buybacks and ended July with net debt of $7.7bn, which was comfortably within its target range of 1.5 to 2 times EBITDA (cash profit).

The shares were down 1.7% in early trading.

Derren Nathan, Head of Equity Research at Hargreaves Lansdown:

“Ashstead has had a solid start to the year with the US division being the main driver of growth enjoying organic growth of 20% with 6% relating to acquisitions.

The UK was more muted at 5% rental growth but against strong comparatives and a much lower contribution from the decommissioning of COVID testing centres.

Ashstead is largely offsetting inflationary pressures through its own price increases and remains confident of achieving market expectations. Given the strong double digit earnings growth outlook we view the forward PE of under 14x as undemanding.

It’s encouraging to see that the company is investing both internally and through M&A for the future and see Ashstead as a beneficiary of a likely uptick in Government spending globally.”