Berkeley Group Holdings PLC (LSE:BKG) and its housebuilding peers are all down since the start of the year and in the red since the start of 2019, which has opened up a big disconnection between what the shares are saying and the strength of their recent trading statements.
However, as interest rates rise, consumers confidence falls and the economy stutters, investors are focusing more on the negatives and wondering how much longer the sector can enjoy its strong run.
READ: Berkeley shares continue decline despite increased profit guidance
That decision is likely to be more difficult for some investors in view of the forecast dividend yields on offer, with Berkeley’s expected dividends giving a 9.9% yield and rival Persimmon PLC (LSE:PSN) even topping this with 12.9%.
Others forecast yields range from 6% to just below 9%.
FTSE 350 builders' forecast dividend yields
- Persimmon 12.9%
- Berkeley Group Holdings 9.9%
- Vistry Group 8.7%
- Barratt Developments 8.5%
- Taylor Wimpey 8.4%
- Bellway 6.6%
- Crest Nicholson 6.5%
- Redrow 6.4%
(Data from SharePad)
Although investors are worried, recent data from the market shows that demand for houses is strong.
The official house price data released today from the Office for National Statistics showed demand for larger properties remained strong, even in spite of the fading of the pandemic and the rising interest rates, with prices for detached homes up 14.9% year-on-year in April, with prices for flats up 7.6%.
Berkeley’s London homeland has lagged the regions, but house prices were still up 7.9%.
However, house prices growth is expected to slow over the rest of the year, which you would think would squeeze housebuilders’ margins – though Berkeley suggested that cost inflation seems to be stabilising recently.
But Berkeley, backed by a massive landbank and over £2bn of forward sales, upped its profit 3% above the existing analyst consensus.
Owning 66,163 housing plots as of the end of April, a land bank it says is "unrivalled” in the sector, the group estimates that it has £8.3bn of future gross margin in its land holdings.
Rivals Persimmon reported 88,043 plots as of the end of December, while Taylor Wimpey PLC (LSE:TW.) had circa 85,000 plots and the final member of the FTSE 100 quarter, Barratt Developments PLC (LSE:BDEV), had 78,464.
Having returned £2.8bn of cash over the past 10 years and continuing to enjoy potent levels of cash generation, Berkeley today promised to return at least £282mln a year for the next three years, some investors are still likely to be tempted.
On a price to tangible net asset value (TNAV), Persimmon and Berkeley have the most expensive shares in the sector at 1.7x and 1.5x, followed by Countryside Partnerships PLC (LSE:CSP), which has put itself up for sale.
Next comes Vistry Group PLC (LSE:VTY), Barratt and Taylor Wimpey, where their prices are now seen as equal to the value of TNAV, and all of which are on a forecast yield above 8%.
Analysts at UBS said they “think shares look cheap… considering the vast unrealised profitability in land holdings and high degree of visibility”, while at Peel Hunt analysts said “other housebuilders look cheaper, [but] there remains a lot of hidden longer-term value within Berkeley”.