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Berkeley: is now a good time to buy this housebuilder?


Berkeley Group LON:BKG the Cobham-based property developer will publish its interim results on Friday (8th December).

When The Armchair Trader last wrote about the housebuilder in March, it was on the back of slump in the company’s share price on gloomy prospects for the UK property market, falling to GBP39.36 a share on 15th March.

Around this time last year, following another round of interest rate hikes and falling property prices, Berkeley was trading at GBP37.40 on 20th December. Berkeley’s shares rallied in January then fell back before rising again.

Share price in positive territory

Overall, the shares’ performance has been somewhat saw-toothed with rallies and retreats throughout the year, falling to its lowest level of in the calendar year of GBP37.73 in the last week of June.

But what a difference a year makes. Berkeley opened the week (4th December) at GBP47 and built throughout Monday. Over one-year Berkeley returned 23%, and even over two-years, notwithstanding the chaos that has ensued in the UK property market over the last twelve months, is still in positive territory, offering investors a 3.6% return.

The company has a market capitalisation of around GBP5bn and its shares have ranged between GBP36.34 and GBP47.33 over a 52-week period.

AI analyst, Bridgewise has remained bullish on Berkeley’s prospects, rating the stock as ‘Outperform’. The analyst said: “Berkeley’s financial results from 1Q23 demonstrated decent performance but will likely only help Berkeley remain on par with its peers. It is highly likely that Berkeley will be mostly tethered to market performance and sector movements for the near term. Therefore, Berkeley received an overall score of 77, translating into an ‘Outperform’ ranking.”

The short-term was always going to be tough for Berkely and its peers in the housebuilder and property sectors, and it dipped throughout the year along with its peer group. A boosterish set of finals in June, for the year ending  April 2023 highlighted phrases including “challenging environment” and “planning environment and regulatory uncertainty” and drew attention to the company’s socio-economic performance away from its core results where forward sales were down 15% year-on-year.

Berkeley Group still profitable despite inflation

Nevertheless, Berkeley still delivered a 4.8% increase in gross profit to GBP696.8m on the back of increased revenues of GBP2.55bn, up y-o-y by GBP8.6% and outlined its commitment to deliver pre-tax profits of at least GBP1.05bn over this and next financial year and a commitment to GBP283m (GBP2.63 per share) per annum shareholder returns up to 30th September 2025. And one would not bet against the housebuilder. Consumers are starting to see through the miasma enveloping the UK property market and dare-we-say-it believe that most of the bad news is out of the way.

Berkeley isn’t the most generous company in terms of dividends, its last announcement being 59.3p/share, but has been busy buying back its own shares, and Berkeley is on track to deliver an annual shareholder return of GBP282.7m (currently GBP2.66 per share) by 30th September 2024 through a combination of dividends and share buy-backs, with at least 66p/share of the annual return made via dividends.

As reported, in the current political climate property is a hot potato, with both sides of the political divide pledging to embark on a new programme of housebuilding, with Labour damning the environmental lobby and saying it will redesignate green belt land for development, which would be music to Berkeley ears given their niche in the last five years towards brownfield development.

Recovery in the property market – for generations the backbone of British economic activity and ‘feelgoodness’ – is inevitable, it is just a matter of timing. The Bank of England is starting the lift its foot off the pedal of rate rises which will ultimately bring mortgage rates down and make property more affordable.

The current spike in the share price since the end of October (going from GBP39.79 to GBP47.37) has made the share less attractive in value terms, but should the housing recovery come along, the growth prospects are tantalising, and investors will be looking forward to seeing how the company has progressed towards that GBP1.05bn target on Friday.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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