Housebuilder Barratt Developments plc (LON:BDEV) expects annual pre-tax profit to beat market expectations as house prices rose and its home completions reached the highest level in nine years.
Pre-tax profit in the year to 30 June is anticipated to increase to £765mln from £682.3mln, ahead of analysts’ estimates of £699mln-£740mln.
Total home completions, including joint ventures, rose to 17,395 from 17,319 last year with the average selling price rising by 5.9% to £275,000 from £259,000.
On private sales, the average price increased 8% to £313,000 from £289,800, supported by house price inflation.
The sales rate for the year climbed to 0.72 from 0.69 last year.
Housing market buoyed by low interest rates and Help to Buy
Barratt said low borrowing costs and the Help to Buy government scheme boosted consumer demand during the year.
"It has been another very strong year for the Group both operationally and financially,” said chief executive David Thomas.
“We have delivered our highest number of completions for nine years, more than any other housebuilder, and continue to see a positive mortgage environment and strong consumer demand.”
The company said its forward sales position was “strong” with 9,762 plots at a value of £2.1bn at 30 June, compared to 8,724 plots at £1.7bn the previous year.
READ:Barratt Developments sees improvement in central London home sales, says HSBC
Land sales fall on Brexit uncertainty
In the land and planning business, the group reported a decline in plot, blaming its caution taken immediately after the Brexit vote last June.
It had £957.2mln worth of land for purchase, equal to about 18,497 plots, compared to £1.1bn worth of 24,387 plots last year.
Barratt's net cash balance improves
Barratt ended the year with a net cash position of £720mln, up from £592mln last year and ahead of guidance.
“We remain committed to our capital return policy announced in February and will announce in September the proposed full year ordinary dividend based on 2.5 times dividend cover,” the group said.
Shares rose 1.71% to 594.50p initially before paring gains to trade flat at 585.0p after analysts at Liberum and Shore Capital issue a 'sell' rating on the stock.
Analysts see better value in other housebuilder stocks
Shore Capital analyst, Robin Hardy, said it was sticking to its 'sell' rating and target price of 584p, as it continues to see poorer returns and a weaker financial position than elsewhere in the sector.
"Barratt, along with the rest of the large caps, trades on a material premium to the midcaps but exhibits less growth and we remain cautious about buying for the yield as we believe that, to a larger extent, the value of the forward income is already reflected in the valuation," Hardy said.
The analyst added: "The house builders are showing very strong trading right now but the risks are increasing and we ae not convinced that the current upwards forever and ever higher margins view of the sector is sustainable."
Liberum, which repeated 'sell' rating and target price of 532p, also sees better value elsewhere.
"Shares are our least preferred as it has lowest margin amongst returners and shortest landbank, making dividend more risky than at Persimmon and Taylor Wimpey," said Liberum's Charlie Campbell.
Housebuilders face slowdown in prices amid Brexit uncertainty
Laith Khalaf, senior analyst at Hargreaves Lansdown, said house price growth has slowed on Brexit uncertainty while there are also rumblings of an interest rate hike on the horizon.
"Barratt did show some caution in the wake of the EU referendum, and over the course of the year acquired 25% fewer plots of land, which might not be so good for the UK’s chronic housing shortage, but does suggest management is willing to exercise prudence," Khalaf said.
"Barratt’s share price has risen by 80% since this time last year, an indication of just how deep Brexit fears ran, and how far they have receded since."