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Barratt Developments still seeing good consumer demand

Published: 09:08 21 Feb 2018 GMT

Barratt homes
Barratt is experiencing continued headwinds in the high end central London market

Profit before tax from the UK's largest house-builder, Barratt Developments PLC (LON:BDEV) was a tad better than the market had been expecting.

Profit before tax in the second half of 2017 rose 6.8% to £342.7mln from £321.0mln the year before on revenue that rose 9.5% to £1.99bn from £1.82bn.

READ: Barratt Developments reports rise in first half completions and forward sales

Broker Liberum had been expecting profit before tax of £337mln, though it got the revenue figure bang-on.

Total completions in the period rose 2.0% to 7,324 from 7,180 the year before.

The interim dividend was hiked 17.8% to 8.6p from 7.3%. The company said it intends to spend £175mln on a special dividend in November 2018 and again in November 2019.

With all of the house-builders hopped up on the government's 'Help to Buy' scheme, it is little surprise that current trading is buoyant, with net private reservations up 6.5% year-on-year at 0.82 per active outlet.

Total forward sales are up 2.0% to £3.08bn, as at February 18, from £3.02bn the year before.

"With good consumer demand, a healthy forward order book and a robust balance sheet, overall we have had a strong first half and we continue to deliver against our operational and financial objectives,” said David Thomas, the chief executive officer of Barratt.

Analyst comment

Liberum, which said Barratt remains its least preferred house-builder, said: “Management notes that although it is improving margins through land acquisition and efficiencies, London sites will be a drag on group margins over the next couple of years. We believe that this is not as strong a statement on margins as some may have hoped for, and repeat our view that we do not see much margin upside in Barratt, as it may be tough for the Group to keep margin benefits while it has a relatively short land-bank.”

Numis Securities was persuaded by the interims, however, to upgrade the stock from 'hold' to 'add'.

“Barratt's update confirms that the all-important spring selling is gathering strength and we think that this, against the backdrop of falling share prices in the sector, has created a good buying opportunity. Accordingly, we move from Hold to Add, but would still argue that the faster growing mid-cap house-builders offer the best prospects,” the broker said.

“Barratt states that it is focused on improving margins through improved build efficiency (new house types etc.) and also keeping a tight control on admin costs, although until management provides clearer guidance over the scale and timing of this opportunity we struggle to give the group credit for this potential,” Numis added.

Numis has a price target of 667p for Barratt.

Shares in Barratt were up 0.9% at 567p in a falling market in the first hour of trading.

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