London homebuilder Berkeley saw its share price decline despite reporting a 6.4% rise in pre-tax profit in the company’s earnings for the year to April 30.
Berkeley said trading in the company remained “stable”, despite fears over the state of the market, with trading in the new fiscal year in line with the end of last, but warned of the potential for a “volatile” operating environment to have an impact according to supply and demand.
Shares of the homebuilder fell more than 5% on the news in early trading, wiping £200million off the company’s £4billion valuation, with losses deepening the fall in the value of the company observed on Monday.
Berkeley said it made a pre-tax profit of £552m in the year, better than expected £545m, on revenue of £2.35bn, up 6.6% compared to 2021 results.
It also confirmed its previous forecast that its March purchase of the St William joint venture from National Grid meant it was on track to meet its profit targets for the next three years a year earlier, with pre-tax returns hitting £600m next year and £625m and beyond.
The company built 3,760 new homes during the year, down from 2,825 in 2021, with gross margin down slightly to 28.3%. The company’s forward sales rose to £2.17bn at the end of the year, from £1.71bn the previous year, but its net cash fell to £269m sterling, compared to £1.13 billion at the same time in 2021, reflecting the investment in the St William joint venture.
Berkeley’s statement gave few concrete numbers on current trading, the cost of fire safety repairs and the impact of construction cost inflation, beyond stating that “on a mixed basis in our portfolio, we have been able to absorb these cost pressures through sales pricing.
And the firm gave a variety of warnings regarding the potential impact on trade of the current economic, political and regulatory uncertainty in light of Brexit, covid, war in Ukraine, security crisis fire and the resulting new tax charges. Managing Director Rob Perrins said: “The economic and operating environment remains volatile with inflation, labor and material shortages, interest rates and development regulatory costs all likely to have an impact on supply and demand.”
The earnings statement also said the company was concerned about “supply chain disruption, increased taxation, inflation and concerns about future economic growth.” He said: “Our industry has also seen regulatory developments in building safety, including the Building Safety Pledge and the RPDT. [Residential Property Developer Tax], carbon-related taxes, and the Leveling and Regeneration Bill. These factors are bound to have an impact on companies’ capacity and appetite for investment and innovation.
On government planning reforms, the firm said there was also a risk that the government’s ‘laudable goals’ will be achieved ‘at the cost of limiting housing provision and benefits. social and economic”.
He also admitted that two of his London regeneration schemes were currently under planning ‘appeal’ by the Secretary of State.
Overall, however, Berkeley said it remains in “an excellent position to achieve its ambitions and those of our stakeholders and society at large.”
Shane Carberry, equity analyst at Goodbody, said the results were positive, despite concerns that demand for new homes could fall due to rising interest rates. He said: “As inflation and interest rates continue to rise, house prices are also rising, albeit at a slightly slower pace than at the start of this year.
“[Berkeley] also noted that the cost inflation it sees continues to be eaten up by house price inflation and as such the Berkeley Group remains in a strong position to meet its guidance.
“In these difficult economic times, Berkeley continues to be an attractive option for investors, thanks to its dividend yield of around 7% and its continued ability to meet its longer-term earnings forecast.”