Berkeley Group Holds FY Earnings Forecasts, Takes “Cautious” Approach

Berkeley Group reaffirmed its full-year profit forecasts on Friday even as the broader housing market continues to cool.

Its shares were last trading 0.3% lower in end-of-week trading at £40.25.

The FTSE 100 housebuilder said that sales of its homes were down 25% between 1 November and 28 February. This is in line with levels it experienced between the end of September and early December.

Berkeley described this as “a resilient performance in the context of the market volatility since the end of September.” It added that the level of recent sales “reflects the underlying demand for quality homes in London and the South East.”

Berkeley said that it remains on course to generate pre-tax earnings of around £600 million in the current financial year ending April 2023. This is in line with the three-year guidance provided in December in which the business also predicted combined pre-tax earnings of £1.05 billion in fiscal 2024 and 2025.

“A Cautious Approach”

Berkeley said that sales pricing remained “firm” in the four months to 28 February and above what it had planned for. On top of this it said that build cost inflation showing signs of moderating.

The builder commented that “whilst the prevailing volatility in the market persists [we] will continue to match supply to demand, adopting a cautious approach to releasing new phases to the market as we focus on the quality of our forward sales.”

Berkeley added that it still expects forward sales to top £2 billion at the end of the fiscal year. That would still be down from the £2.17 billion recorded in April 2022, however.

Net cash is expected to come in at approximately £375 million for this financial year, meanwhile. That’s up from the £269 million of a year earlier.

“Mildly Impressed”

Britain’s housebuilders have been on the back foot following a steady stream of interest rate hikes. The Bank of England has raised its benchmark rate for 10 straight meetings to current levels of 4%, pushing mortgage costs northwards.

The gloomy economic outlook and cost-of-living crisis has also dampened homebuyer appetite. Building society Nationwide has reported that average residential property prices dropped 1.1% in February. Excluding the pandemic, this was the biggest annual fall since 2012.

But analyst Adam Chiekrie of Hargreaves Lansdown has said that he is “mildly impressed” by recent trading at Berkeley. He noted that sales declines haven’t been as sharp as some of the company’s rivals.

Chiekrie said that this resilience could be because the business caters to “a high-end market” by supplying quality homes in the UK capital and surrounding counties.

The analyst commented that “these customers are arguably more resilient to the current cost-of-living pressures challenging potential house buyers, reflected by the group’s sales pricing remaining above business plan levels.”

However, he added that “while it’s reassuring to see Berkeley stick to its guns in the short-term, there’s no denying the housing market’s on shaky ground.”