Housebuilders led the FTSE 100 lower in Wednesday business following more shocking inflation data from the UK. London-focused builder Berkeley Group was one of the index’s leading fallers despite the release of solid full-year financials.
At £38.30 per share Berkeley’s share price was 2% lower in midweek business.
The company said that revenues rose 8.6% during the 12 months to April to £2.55 billion. Pre-tax profit meanwhile increased 9.5% year on year to £604 million, in line with guidance.
Net cash increased to £410 million from £269 million over the period, with a £629 million decline in land-related spending boosting the balance sheet.
Reflecting current market weakness, forward sales at Berkeley fell to £2.1 billion as of April, down 15% year on year. And the business cautioned that sales in financial 2024 “ will be around 20% lower” than last year based on current sales rates.
But the company said that “sales pricing remains firm and above business plan levels with build cost inflation moderating.”
Interest Rate Headwinds
Chief executive Rob Perrins said described last year’s trading as “a very strong performance… given market conditions and changing building regulations, and reflects the resilience of Berkeley’s business model with its focus on the country’s most undersupplied markets.”
He said that the business continues to witness “good levels of enquiry” for its homes. But he added that “the market is likely to lack urgency until there is more certainty over the trajectory of interest rates.”
A flow of alarming inflation data is fuelling speculation that interest rates in the UK will remain higher for longer. Latest figures today showed consumer price inflation remain stubborn at 8.7% in May when a decline to 8.5% had been expected.
The Bank of England is tipped to raise its borrowing rate by 0.25% when it next meets tomorrow. But bets are rising that policymakers will increase its benchmark by half a percentage point to 5% following today’s inflation readings.
Still, Berkeley today re-iterated its guidance of delivering pre-tax profits of “at least” £1.05 billion over the next two fiscal years. It said that profits would be weighted towards the second half of this period.
But the firm advised that it “will remain cautious in committing to new investment until the conditions for growth are in place.”
“An Omen”
Adam Vettese, analyst at social investing firm eToro, says that Berkeley’s latest update “could be an omen for the wider housing market and one of the last benign updates from a housebuilder for some time.”
He said that “we’re now entering a very dangerous period for the housing market” as mortgage rates rise, and noted that “Berkeley is also heavily exposed to one of the most at-risk markets in London.”
However, Vettese added that “while the housing market could be in for a rough ride for the next couple of years, the fundamentals haven’t really change if you view it with a long-term lens,” noting that the UK continues to fail to build enough homes.
Andy Murphy, director at Edison Group, described Berkeley’s update as “a strong set of results.” But he noted that the amount of cash it invested in new land holdings dropped to £7.6 billion last year from £8.3 billion previously.
“This suggests that the Berkeley Group lacks confidence in the market, and prefers to keep cash-on-hand to weather future difficulties,” Murphy said.
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