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Berkeley Group: why are some investors getting out ahead of trading update?


Shares in UK property developer Berkeley Group [LON:BKG] have been slumping ahead of its latest numbers. Stock is down 6.5% over the past 30 days. This breaks somewhat of a bullish trend for the company, which has seen its shares bid up by 13.6% over the last six months. Should investors be expecting some bad news?

Liberum Capital thinks not. It has set a target price of 4750p for the stock, which is heavily institutionally owned (75% approx]. Bear in mind Berkeley is heavily exposed to UK residential property, and this may be why there has been some trimming of positions in recent weeks.

Berkeley Group is due to issue a six month trading statement on Friday, which covers six months of trading to the end of October 2022.

Can the UK housing market hold up?

There has been mixed messaging on UK housing from the major mortgage lenders. Halifax reported that average UK house prices were up 1.1% in February, but ask Nationwide, and they’re saying UK house prices are now DOWN for six months in a row. There is also the removal of the government’s Help To Buy scheme, which some analysts worry may make it harder now for first time buyers to get into the market, especially at a time of high inflation in the UK.

“We’ve seen signs that the foundations may be beginning to show some weakness,” noted Aarin Chiekrie, equity analyst with Hargreaves Lansdown. “Compared to the first five months, trading was down around 25% during the last five weeks of this period, reflecting the challenging environment housebuilders find themselves in. Recession fears, double-digit inflation and rising interest rates are a potent mix, one which has been tough for buyers to stomach. The group’s higher-end, London focus means it offers something different to other large builders. But that doesn’t mean they’re immune to wider trends.”

But that’s just one view – there is plenty of bullish sentiment around housing out there at the moment and evidence that the overall UK housing market remains tight.

“Recent reductions in mortgage rates across a range of lenders should have provided a much need boost to consumer confidence and will likely stoke further interest amongst buyers who have been put off by soaring rates,” said Simon Bath, CEO of iPlace Global. “On top of this, continuing resilience in the labour market are arguably helping to stabilise prices following the falls seen in November and December.”

Berkeley Group shares still look cheap

Berkeley Group shares are still looking relatively cheap, despite the six month bull run on the stock. The PE is 9.9x and it seems to be performing reasonably well, especially when compared with its peers. From a technical analysis perspective, we’re not too happy with the moving average (50 day) and the MACD, but it’s not a nightmare.

Overall in UK house building stocks the financials look pretty good across the board, with a tight cluster of well-managed companies, Berkeley being one of them. Investors selling now will be worried mainly about the macro picture and the loss of Help To Buy. There are few poor performers among the major house builders, with the possible exception of Persimmon [LON:PSN] which looks like the outlier here now.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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