UK property firm Berkeley (BKG) stock up on profit rise
By Jenni Reid
11:29, 8 December 2021
Shares in British property developer Berkeley Group (BKG) rose 4% on Wednesday morning after the company reported higher profits in the six months to November and hiked its full-year forecast.
The FTSE 100 firm increased profit before tax by 26% year-on-year to £290.7m ($383.4m), with earnings per share rising from 149.6p to 201.7p.
“The performance reflects Berkeley’s conviction and investment in its strategy over the last 18 months, which is focused on London and the South East, the country’s most under-supplied housing markets, in spite of the challenges presented by the pandemic, supply chain constraints and regulatory environment,” said chief executive Rob Perrins.
Perrins continued: “Over this time, we have continued to deliver in line with our uniquely long-term operating model, progressing construction across our portfolio of 64 live projects.
“These include 30 long-term, highly complex regeneration sites, of which 25 are now in delivery.”
The company said the “visibility” of this portfolio along with a “resilient sales market” meant it was increasing its earnings guidance for the current financial year by 5%.
It also said it expected 5% annual pre-tax profit growth for the next three years, meaning around £625m in profits by 2024-25.
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Yesterday, Barclays upgraded its stance on Berkeley stock from ‘underweight’ to ‘equalweight’ after recent share price underperformance but kept its price target at 4,460p. BKG stock is down 5.27% in the year to date.
It also upgraded housebuilder Crest Nicholson (CRST) from ‘equalweight’ to ‘overweight’.
However, it downgraded developer Persimmon (PSN) from ‘overweight’ to ‘underweight' and reduced its price target from 3,000p to 2,500p.
The bank said its analysis showed that the firm was most exposed to risks of affordability pressures on first-time buyers due to inflation and the end of the Help to Buy scheme in 2023, which currently accounts for around 20% of private housing sales.
In August, Persimmon reported profits up 64% in the first half of the year and recently said it was optimistic about the property market outlook.
This week, Halifax data indicated UK housing prices were rising at their fastest rate for 15 years.
While the stamp duty holiday and a ‘race for space’ during the pandemic fuelled growth from last summer to this autumn, Halifax managing director Russell Galley said the continuing rise was underpinned by a shortage of available properties, a strong labour market and competition amongst mortgage providers keeping rates close to historic lows.
Tom Bill, head of UK residential research at property consultancy Knight Frank, commented: “Gravity-defying price growth is the result of competitive mortgage rates and tight supply, both of which we expect to reverse next year, increasing downwards pressure on prices.
“Interest rates may rise more slowly and supply could stutter if the Omicron variant proves to be more serious than the early anecdotal evidence suggests. Equally, January could bring a relief bounce across all parts of the housing market if its severity is lower than the Delta variant.”