Berkeley’s sales rates continued to improve over the third quarter, now surpassing last year’s level. The group is “hugely encouraged” by the new government’s mindset around planning reforms and housing delivery ambitions.
The full-year net cash position is expected to fall from £474mn to around £300mn, partly due to increased share buybacks since the half-year mark. This was below market forecasts of £400mn.
Pre-tax profit guidance of £525mn for the current year and at least £450mn next year remains unchanged.
An interim dividend of 33p per share (£33mn total) will be paid on 28 March 2025. A further £156.1mn of cash will be returned to shareholders through dividends and share buybacks by the end of September 2025.
The shares were broadly flat in early trading.
Our view
There were no major surprises knocking at the door as Berkeley delivered its third-quarter update. Sales rates improved over the period, helping to keep full-year profit guidance on track.
The improving demand outlook is a trend we’re seeing echoed across the sector. But Berkeley’s London focus and higher-end product, with an average sale price of £600,000, means it offers something different from the other large builders. Many of its sites are technically challenging and offer a differentiated living experience to its customers.
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 had normalised and build cost inflation was back at negligible levels last we heard, helping to support margins.
There’s also the group’s change-of-tack plans to build and rent 4,000 homes in London over ten years, which make sense in theory. The rental market is hot, and the aim is to set up a mature portfolio of rented assets before looking to dispose of them.
The problem is it’s a slower route to getting the full cash proceeds than the usual strategy of selling on a forward basis. It’ll also eat into surplus cash in the medium term, so there’ll be less available for shareholder returns.
Despite moderating, the order book which stood at £1.5bn at the half-year mark, remains a key strength of the group, helping to underpin pre-tax profit guidance of £525mn.
There are some challenges to be aware of, though. While mortgage rates have dipped from recent peak levels, they remain elevated and continue to cause a relative lack of urgency among buyers. The picture’s improving but there’s still some way to go to get back to the boom of a few years ago.
£2.5bn has been allocated for land acquisitions over the next decade. That should be funded by free cash flow, reflecting confidence in the long-term housing market - a view we share given strong structural demand.
Even with this investment, Berkeley anticipates generating enough cash to return £2.0bn via dividends and buybacks over the same period. But the pivot to Buy-to-Rent presents cash flow risks worth monitoring and there are no guarantees.
With its higher-end, London focus, Berkeley offers something different to the broader sector. That's resulted in a valuation at the high end compared to peers, which is justified in our eyes. However, it means that if a housing market recovery comes through in the medium term, other names in the sector are likely to catch more wind in their sails.
Environmental, social and governance (ESG) risk
Most housebuilders are relatively low risk in terms of ESG, particularly for those in Europe. However, there are some environmental risks to consider, from direct emissions to the impact of their buildings on the local ecology. The quality and safety of their buildings is also a key risk.
According to Sustainalytics, Berkeley Group’s management of ESG risk is strong.
The group has strong science-based greenhouse reduction targets and deadlines which are backed by policy commitment and ongoing measurement, monitoring and reporting. However, while the group considers recyclability of products when making purchases, it does not disclose the percentage of recycled materials used, or a target for recycled material use in the future.
Berkeley key facts
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