Barratt Developments PLC (LSE:BDEV)’s trading update was a mixed bag, according to UBS.
The bank said delivery has been good with housing revenues of around £2.73bn (7% above consensus), driven by volumes growth of +8% (+4% vs consensus) and average selling price (ASP) growth of +14.6% (+4% vs consensus).
Margins are not disclosed, but UBS estimated the company should deliver pre-tax profits of £500mln+ compared to consensus forecasts of £477mln and UBS's estimate of £525mln.
Sales rate one of the lowest "in past 15 years"
But the bad news is that reservation rates were very weak with an exit sales rate of 0.30 sales per site per week (-57% year-on-year) since early October, a further deceleration from the 0.48 reported in the six weeks prior to that.
This marks one of the lowest sales rates “we have observed in the past 15 years”, UBS stated.
Full-year sales volumes of 17,500 are still forecast by the company assuming a recovery in sales rates to 0.50 per site per week.
UBS thinks it is “too early to call this right now” but it suggested normal seasonality and a 100bps reduction in mortgage rates in early January should help to improve sales rates.
Incentive levels have started to edge up from last year's 2% to 3% but remain reasonably modest, with no headline price cuts, the bank noted.
Profits to fall further
The key question, according to UBS, is where we go from here.
For 2023, UBS calculated that guidance implies a pre-tax profit range of £730mln to £960mln (consensus £916mln) and the broker forecast a further material drop in fiscal year 2024 to £266mln (consensus £583mln).
UBS retained its 'buy' rating and 470p price target and the shares after falling in early exchanges are now trading only slightly lower, down 0.45%, at 422.50p.