Berkeley reported half-year revenue of £1.2bn, broadly in line with last year. A 14.2% fall in the number of houses sold was offset by higher average selling prices of around £624,000, reflecting the mix of properties sold.
Pre-tax profit rose 4.6% to £298.0mn, largely due to a fall in financing costs. Operating margins were stable, with build cost inflation across most trades at "negligible" levels.
The order book moved slightly lower, down from £2.1bn to £2.0bn, and is expected to move lower again in the second half due to lower sales rates.
Net cash of £421.6mn has moved up £11.2mn since year-end. Free cash flow fell from £141.1mn to £72.8mn over the year due to lower cash generation from operations.
Berkeley has extended its profit outlook by a further year, expecting at least £1.5bn of pre-tax profits over the three financial years ending April 2026.
The shares fell 1.7% following the announcement.
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Our view
Berkeley's sitting on some pretty solid foundations, despite the current weakness in the housing market. A change in the mix of houses sold led to higher average selling prices, and helped first-half profits come in around 10% ahead of market expectations.
The order book is a key strength of the group and sits at a mighty £2.0bn. The visibility this gives Berkeley is significant and is the reason the group's able to extend its profit guidance by another year, with more than £1.5bn in pre-tax profits expected in the three years to April 2026. Analysts are forecasting profits to be fairly evenly spread over the period, and with a strong start to the first year, we think this looks achievable.
The group's London focus, and higher-end product with an average sale price of £624,000, means it offers something different to the other large builders. Many of its sites are technically challenging, and that's afforded it enviable margins in the past. Whether or not this exposure to more exclusive property proves to be an advantage going forwards depends on how the economy evolves.
Domestic and international demand in the key London area is likely to remain more robust than in other parts of the country, and the housing supply shortage doesn't look to be going away anytime soon. Cancellation rates have normalised and build cost inflation is now back at negligible levels, which is helping to support margins.
There are some challenges to be aware of though.
High mortgage costs continue to cause a relative lack of urgency among buyers, with private sales rates down by around a third as a result. Until there's more certainty about the direction of travel, potential buyers will continue to be hesitant to sign the dotted line.
The regulatory environment continues to be called out for creating uncertainty and delays in the housebuilding process. The resulting planning issues still need to be solved as they're creating bottlenecks in Berkeley's development pipeline.
Berkely's already taken action to improve its financial resilience, with supply being carefully matched with demand and spending on new plots of land has also been reined in. But the group's best-in-class land bank means that shouldn't have too much of an impact on growth prospects when the housing market picks back up.
This has seen net cash increase to £421.6mn in the first half, comfortably ahead of its full-year target. This plump cash cushion means there's room to feed cash back to shareholders through dividends and share buybacks, with the group on track to deliver on its £283mn goal. But as ever, no shareholder returns are guaranteed.
With its higher-end focus, Berkeley offers something different to the broader sector. That's resulted in a premium price-to-book valuation compared to peers, which is justified in our eyes. But keep in mind that near-term challenges remain and this is reflected in Berkeley continuing to trade below its long-term average.
Berkeley key facts
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