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FTSE 100: Homebuilder Berkeley sees robust demand offset higher costs

·Finance Reporter, Yahoo Finance UK
·3-min read
Berkeley  Scaffolders work on a construction site in London, Britain, October 20, 2021. REUTERS/Toby Melville
Berkeley sells homes which are on an average twice the national UK house price. Photo: Toby Melville/Reuters

Berkeley Group (BKG.L) is on track to meet full-year profit guidance, the house builder said on Tuesday, despite a "volatile" operating environment.

The business said it would deliver between £600m and £625m in pre-tax profit over the year to April 30 2024.

It would be a significant step up from the £551.5m that the company delivered in the previous 12 months.

Berkeley, which sells homes on an average for around twice the national UK house price, caters to an upmarket customer base, which is better equipped financially to weather the current cost of living crisis.

But the FTSE 100 firm, which focuses on London and the South of England, is also facing increased costs, which are rising between 5% and 10% across its portfolio.

Read more: FTSE 100: Ashtead Group revenue jumps 25% to $2.25bn

“The operating environment remains volatile and little changed over the couple of months since the June results announcement, with overall cost inflation continued at the rates noted therein,” it said.

“In this context, Berkeley’s current strategy focuses on ensuring each site has the most appropriate development solution reflective of prevailing requirements, whilst new land will only be added to the land holdings very selectively.”

Forward sales - representing cash due under exchanged private sales - are expected to be marginally above the £2.17bn held at 30 April 2022, while net cash is forecast to be around £269m, similar to the level held at the end of the last financial year.

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown said: “Berkeley Group has put in a resilient showing, despite soaring cost inflation which is marring the entire sector.”

“The reason profits have been left without too much bruising is because sale prices are high enough to offset the housebuilder’s fatter bills.”

“This is a dynamic being seen almost across the board, but the longevity of the pattern is a question mark for Berkeley” she cautioned.

Although house prices remain high at the moment, investors worry that demand might dry up and prices fall in the years ahead.

Read more: FTSE 250: Aston Martin shares plunge after announcing discounted rights issue

Berkeley is also set apart from many of its competitors, given its focus on London and the South East. Its previous summary revealed that despite many brownfield projects and the company being responsible for 10% of London’s new private and affordable homes, the average selling price remained at a heady £603,000. Even the recent opening of the Elizabeth Line is likely to have a positive impact, with Berkeley already noting an uplift in properties along the line in London and the Thames Valley,” Richard Hunter, head of markets at Interactive Investor, said.

“However, if against this backdrop the acid test is the performance of the shares, then the house builders are currently failing, and Berkeley is no exception. The price has dropped by 33% over the last year, as compared to a gain of 1.4% for the wider FTSE100 and the evolving landscape for the property market is becoming more challenging,” he added.