Interim results from Berkeley Group Holdings PLC (LSE:BKG) demonstrate why it is "different to other housebuilders", said UBS.
The company cut its profit guidance for the next two years as it revealed the value of sales for its London and South-East target market has dropped sharply since the end of September, though it remained on course to hit this year’s profit target.
Reservation rates were up 2% in the half but since the end of September dropped 25% in value terms, which analysts at the investment bank said they "think is decent considering industry sales rate drops of 40-50%", while pricing has remained stable.
Naturally, reducing activity levels leads to lower earnings, they said, which resulted in the FTSE 100-listed housebuilder cutting pre-tax profit guidance for 2024 and 2025 financial years to £1.05bn from £1.25bn.
This was already reflected in consensus estimates, which were in fact slightly lower at £1.04bn, while current year guidance of £600mln is unchanged and is supported by forward sales.
Berkeley made no land acquisitions during the first half, resulting in the land bank reducing slightly to 64k plots from 66k in April.
Management noted increased uncertainty in the UK planning regime and additional taxation, which it believes will lead to a further reduction in new supply in London.
Given the size of the land bank is set to provide more than 10 years of building, UBS said, "we believe Berkeley can afford to not buy land for a period of time... which should lead to cash generation", and allows the group to stick to its plans to return £283mln annually to shareholders, or 260p per share, resulting in a 6.8% yield.
UBS maintained its 4,275p share price target, versus the last close of 3,798p and little movement today after an initial spike was flattened off.