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Berkeley raises profit guidance after "resilient" start to the year amid housing market slowdown

The company said the London and south-east property market “lacks urgency” and demand has been constrained by macroeconomic uncertainties as Brexit looms
The housebuilder had another moan about market conditions

Housebuilder Berkeley Group Holdings PLC (LON:BKG) raised its profit guidance for the year after a “resilient” start to the year following a slowdown in the London and south east housing market.

In the six months to October 31, pre-tax profit fell to £401.2mln from £539.9mln a year ago and revenue dropped to £1.65bn from £1.66bn.

The company said the London and south-east property market “lacks urgency” and demand has been constrained by macroeconomic uncertainties as Brexit looms. The group also blamed the weaker profits on policy interventions, including higher taxes and mortgage restrictions.

Reflecting the tougher conditions, cash due on forward sales fell to £1.9bn at the end of the period from £2.2bn in April.

READ: Berkeley Group rolling in cash, whinges about housing headwinds

The group sold 2,027 homes in the first half, down from 2,190 last year. However, the average selling price increased to £740,000 from £721,000, reflecting the mix on the group's developments in central London.

The operating margin fell to 24.3% from 30.9% last year due to higher overhead cost.

Pre-tax return on equity declined to 30.5% from 48.8%.

Berkeley extends shareholder returns programme, lifts profit guidance

With net cash rising to £859.7mln from £687.3mln a year ago, the company declared an interim dividend to 7.12p each.

Under its shareholder returns programme, the company expects to pay out £16.43 per share, or £2.2bn, to investors through dividends or share buybacks by the end of September 2021.

Berkeley said the next £139.7mln shareholder return will be paid by 30 September 2019 through a combination of dividends and share buy-backs. 

It will extend its shareholder programme to September 2025 with a payout of £280mln per year, assuming there is no material deterioration in the operating environment.

The group increased its pre-tax profit guidance for the current financial year by more than 5% and left its forecasts for the next two years unchanged, targeting a pre-tax return on equity of 15%.

Strong results but Brexit could hit sentiment

“Berkeley has had a good start to the year and this is reflected in our guidance which is increased for the full year, and reaffirmed for the next two years, based upon current market conditions,” chief executive Rob Perrins said.

“This is in the context of a short-term outlook that is clearly uncertain due to the ongoing Brexit process and a number of headwinds in the operating environment in London and the South East.

"This uncertainty affects sentiment and confidence which has a consequential adverse impact on investment levels and transaction volumes with a number of developers withdrawing from these markets.”

Shares rose 2.74% to 3,412p in morning trading. 

George Salmon, equity analyst at Hargreaves Lansdown, said the results were "strong".

"Upgraded profits and a balance sheet that looks even more resolute has given the group the confidence to promise a steady flow of shareholder returns all the way out to 2025," he said.

"However, there’s only so much the group can do to look after its share price. Sentiment will remain closely tied to the Brexit barometer since London could well be in the eye of the storm should a disorderly departure trigger a housing meltdown.

"While the shares remain something of a binary bet on Brexit in the short-term, looking further afield Berkeley’s niche operating model and enviable track record mean we think it should be a long-term winner.”

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