The reaction to an update from Barratt Developments PLC (LSE:BDEV), Britain’s largest housebuilder, encapsulated current invesor mixed feelings about the sector, where dividend yields are among the strongest in the FTSE 350.
The FTSE 100 housebuilder reported robut demand, with volumes of new homes returning to pre-pandemic volumes, sales faster than expected and house prices remaining in line with expectations.
Net cash was strong at £1.125bn, as was the forward sales position at £3.6bn.
A dividend of 37.52 gives a historic yield of 8.1%, with similar next year.
However, there were elements to trouble investors, with sales rates of 0.81 per site per week for the year, down from the 0.93 reported in May, but up 3.8% from last year.
Analysts at Jefferies noted there was no guidance for the 2023 financial year, but with sites slightly lower year on year but build equivalent units in the second half of the past year up 6.5% on the first, the mid-term guidance of 3-5% growth in completions "seems reasonable".
Also, building is becoming more costly with total build cost inflation of circa 6% and more recently between 9% and 10%, while the planning process is also blamed as an impediment to growth.
“Build cost inflation of 6% in the year just gone is burdensome enough but a potential double-digit increase in the current financial year would really challenge Barratt’s ability to protect margins," said analyst Danni Hewson at AJ Bell.
“House prices may have risen rapidly enough to cover these higher costs so far but Barratt, like its peers, is running just to stand still in terms of profitability and there is a significant risk that raw material and labour costs continue to grow."
On the plus side, unlike Footsie rival Persimmon, Barratt is not being forced to downscale its volume targets just yet, which Hewson said "suggesting its relationships with suppliers, procurement strategy, simplified build process and attractiveness as an employer are paying off".
The shares fell 1.4% to 458.6p, down 40% in the year to date.
Analysts at UBS suggested the share price reaction based on the prospects for margins being squeezed, but maintained its 'buy' rating and 660p share price target.
Jefferies reiterated its 'hold' rating and 535p target price.