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Berkeley to report drop in first-half earnings amid housing market slowdown

The day ahead includes interim results from Berkeley Group and the US non-farm payrolls report, while conditional dealings for AJ Bell's London IPO are due to begin
Berkeley
UBS expects first-half pre-tax profit to fall 34% year-on-year to £357mln

Berkeley Group Holdings PLC (LON:BKG) is expected to report a decline in first-half earnings on Friday as the housebuilder contends with a slowdown in the London and south-east housing market.

In an annual general meeting statement in September, the company said pricing had remained strong and there was demand for good quality, well located homes.

However, it added that London and the south east property market “lacks urgency” and remains constrained by high transaction costs, restrictive income multiple limits on mortgage borrowing and economic uncertainty.

Nevertheless, the group confirmed that it was on track to meet its guidance of at least £3.375bn of pre-tax profits for the five-year period from 1 May 2016 to 30 April 2021, with at least £1.575bn pre-tax profit to be delivered in the two years ending 30 April 2019.

For the first half, UBS expects pre-tax profit to fall 34% year-on-year to £357mln and revenue to drop 13% to £1.41bn. Its estimates include a £35mln contribution from accounting changes related to IFRS 15.

The broker expects net cash of £758mln after the payment of £44mln in dividends and £191mln in share buybacks in the period.

 “Given weakness in the London market we expect cash due on forward sales to have reduced sequentially to ~£2bn (April: £2.2) and the total order book including cash deposits received to £2.8bn (April: £3.1bn).

 “Given the high cash balance and high proportion of cash returns allocated to buybacks, we think a higher interim dividend than the implied 8.4p (post buy back) could be announced.”

Conditional dealings of AJ Bell IPO set to begin

Investment firm AJ Bell will announce the final pricing of its initial public offering when conditional dealings are due to begin on the London Stock Exchange.

The online stockbroker last month set the price range at between 154p and 166p, giving it a valuation of between £626mln and £675mln.

 "There has been significant interest in our IPO which reflects the potential for expansion in our market, the strength of our business model and our track record of sustainable growth,” said chief executive Andy Bell.

Unconditional dealings are expected to start on December 12.

US non-farm payrolls roll around again 

Away from corporate news, the official US monthly jobs report will steal the market’s attention as the Federal Reserve assesses the health of the labour market ahead of its interest rate decision later this month.

The non-farm payrolls data is expected to show US employers added 199,000 jobs in November, compared to 250,000 the previous month, and the unemployment rate remained unchanged at 3.7%.

But the focus will be on wages with economists expecting a 0.3% month-on-month rise in average hourly earnings in November following a 0.2% increase in October.

“As I say every month, I don’t think the focus should be on payrolls – employment has already surpassed the Fed’s target, so moving further into full employment isn’t going to affect their policy,” said Marshall Gittler, chief strategist and head of education at ACLS Global

“Rather, attention should be on the rate of change in average hourly earnings. That’s a harbinger of inflation, which is the key variable nowadays for the Federal Open Market Committee.”

The Fed holds its next policy meeting on December 18-19 and is widely expected to raise interest rates for the fourth time this year. However, given the current market volatility and concerns about trade wars between the US and China the Fed could decide to hold off on another rate hike. 

 

Significant announcements due: 

Interims: Berkeley Group PLC (LON:BKL)

AGMs: Associated British Foods plc (LON:ABF)

Economic data: US non-farm payrolls; US average hourly earnings; US wholesale inventories; University of Michigan consumer sentiment index

 


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