London-focused housebuilder Berkeley Group Holdings PLC (LON:BKG) warned that it expects forward sales to continue to moderate after a decline in the first half, blaming Brexit uncertainty and higher taxes.
However, shares gained 8.09% to 4,157p in morning trading as the company upgraded its forecast for the five years to April 2021 and posted an increase in first-half profits and revenues.
READ: Deutsche Bank downgrades Berkeley Group but remains bullish on sector
The company said it expects the current financial year to be a peak for the group, reflecting worries over Brexit, economic growth and inflation.
A hike in stamp duty for second home purchases and buy-to-let properties in April along with restrictions on tax relief for landlords on mortgage interest repayments has also weighed on the housing market.
Forward sales at the end of the first half at October 31 stood at £2.45bn, down from £2.74bn at 30 April 2017.
“Given the macro back-drop and return to normal market conditions, which results in customers committing later in the development cycle, Berkeley expects its forward sales to continue to moderate during the second half of the financial year,” the group said.
Bank of England needs to act, says Berkeley
Berkeley said with forward sales “so important” to underpinning its highly capital intensive developments in London, it continues to urge the Bank of England to look into extending mortgage offer periods to allow UK customers to buy homes off-plan.
While there is still good underlying demand for properties in London and the South East of England, an uncertain UK economic and political outlook coupled with high property taxation continues to mean customers are more cautious and purchasing later in the development cycle, Berkley explained.
First half profits and revenues rise
But the group said demand remains supported by low interest rates and a weaker pound encouraging foreign investments.
Pre-tax profit rose 35.8% year-on-year to £533.3mln for the first half on revenue of £1.6bn, up 13.7%.
The company sold 2,117 new homes across London and the South East, compared to 2,076 last year, and average selling prices rose to £719,000 from £655,000.
Reservations were 20% higher than last year but 10% lower than 2015/16.
Berkeley ended the period with net cash of £632.8mln, up from £285.5mln at the end of April.
George Salmon, equity analyst at Hargreaves Lansdown, said it "won't be news to anyone that a few clouds are hanging over UK buyers" but average selling prices of more than £700,000 mean it isn't dependent on the typical Brit for sales.
"One of the main positives coming out of these results is that demand is holding up well among overseas buyers," he said.
"After the initial panic following the Brexit vote, the group has consistently delivered impressive results. The longer this goes on, the more faith investors will have in Berkeley’s generous shareholder returns programme, which looks set to see the group return another £1bn over the next four years.”
Berkeley raises five-year profit guidance
Looking ahead, Berkeley expects £1.5bn of pre-tax profit across the next two financial years ending 2018 and 2019 with 60% to be weighted towards the current year at about £900mln.
This compares to the pre-tax profit of £812.4mln reported in fiscal year 2017.
For the five years ending April 2021, the company raised its guidance for pre-tax profit to £3.3bn from £3bn, assuming current market conditions continue.
Numis and ShoreCap leave 'hold' rating
Numis said the interim results were "strong" and upgraded its 2018 and 2019 estimates by 3% and 5% respectively, while keeping its forecasts for 2020/21 unchanged.
"We continue to believe that Berkeley remains a very high quality operator and the strength of its landbank will support future growth and cash generation," Numis said.
"However, until more clarity over the direction of the London housing market emerges, we retain our 'hold' rating."
Shore Capital is reviewing its valuation and forward guidance following the results. The broker said it may raise its future value to 3,700p from 3,350p but since that is still below the current share price it is unlikely to change its 'hold' rating on the stock.
"We suspect that the share price was already discounting some increase in guidance but the increase is greater than could reasonably have been expected so we would expect a positive reaction in the share price today," said ShoreCap analyst Robin Hardy.