Berkeley Group Holdings PLC (LON:BKG) shares fell as it reaffirmed its full year guidance but warned that the London housing market continues to be affected by Brexit uncertainty and higher taxes.
In a trading update for 1 May to 31 August, the company reiterated that it sees profits in fiscal year 2017-18 at least in line with last year after trading in the first four months of the year met expectations, with sales prices ahead of target and strong forward sales.
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The group added that it is on track to deliver at least £3.0bn of pre-tax profit in the five years to 30 April 2021.
“While Berkeley is in excellent shape, the London market continues to be adversely impacted by both, uncertainty around the terms and implications of Brexit and, the changes in recent years to SDLT (stamp duty property tax) and mortgage interest deductibility,” the company said.
“This has been partly offset by good availability of mortgage finance at low interest rates, favourable currency exchange rates and the quality of Berkeley's well-presented and well-located homes.”
However, new construction starts in London remain 30% lower than in 2015, held back by affordable housing requirements, the Community Infrastructure Levy and Section 106 planning obligations.
Shares in Berkely dropped 2.35% to 3,664p in morning trading.
Surplus cash returned to shareholders
Berkeley will return surplus cash of £2.2bn, or £16.34 per share, to shareholders with a combination of dividends and share buy-backs by 2021 on a six-monthly basis. This equates to £2.04 per year, up from £2.0 initially under the shareholder returns programme, following share buy-backs undertaken since January 2017.
Berkeley will have returned £8.34 of the £16.34 target by 30 September.
“With its strong balance sheet, forward sales, high quality land bank and leading brand and customer service, Berkeley is well positioned to deliver its earnings guidance and optimise shareholder returns in the current market conditions, whilst retaining sufficient capital to be flexible should suitable new investment opportunities arise."
Berkeley bullish despite London headwinds, says analyst
Neil Wilson, senior market analyst at ETX Captial, said the company offered more bullishness despite all the uncertainty in the London market.
"The script is unchanged – low rates, currency tailwinds offsetting lower demand in the capital and a slump in housing activity that has seen the number of housing starts in London drop 30% from 2015 levels. Berkeley reiterated guidance of £3bn in pre-tax profits for the five years to April 2021," he said.
"Housebuilders are enjoying a very accommodative environment – rising demand, undersupply of new homes, ultra-low interest rates and good mortgage availability, and a supportive government policy scheme in Help to Buy."