Berkeley Group is ‘weathering the storm’ as homebuyers consider a return

Berkeley Group has reaffirmed its earnings targets for the coming years as the luxury homebuilder continues to show resilience amid the housing sector’s troubles.

The housebuilder said it aims to deliver £1.5 billion in pre-tax profits over the three years ending April 2026, with pre-tax profits expected to reach £550 million in the coming year, in line with consensus estimates.

Berkeley tends to be more resilient to housing market challenges than some other housebuilders because many of its developments are aimed at the luxury market and it has greater exposure to London.

The FTSE 100 member said it is in a strong position as it has booked all of its revenue for the current financial year and secured 70 percent of revenue for the coming year.

But cash from private forward sales also “continued to decline in the second half due to a combination of strong deliveries and prevailing sales figures,” the report said.

Sales figures are around a third lower than a year ago, reflecting a broader industry slowdown, but consistent with performance in the first half of the year.

These “traces of weakness… will take some time to flush,” said Richard Hunter, head of markets at Interactive Investor.

Homebuilders have suffered in recent months, with demand falling due to weaker mortgage affordability and availability, as well as higher costs.

Adam Vettese, analyst at investment platform eToro, said: “Conditions have been quite tough for housebuilders, with the inflationary environment and high interest rates pouring cold water on demand, with sales down around a third year on year.

“However, Berkeley has weathered the storm and reaffirmed their guidelines as stated in their previous update.”

With hopes growing that the Bank of England will cut rates, Vetesse says the market will become “significantly more attractive” given Berkeley’s robust position.

Berkeley noted that there has been a good level of research, which has renewed their interest in the sector ahead of possible falls in interest rates and a return to economic stability.

Berkeley Stocks rose 0.19 percent to 4,686p in morning trading, after reaching 4,722p earlier in the day, putting it within five percent of its 52-week high.

“Given their smart management of a difficult market, there is no reason why they cannot continue in 2024,” Vetesse said.

Interactive Investor’s Hunter agreed, noting that Berkeley has managed to beat the FTSE100 by a significant margin and weather the storm facing housebuilders.

“Berkeley Group has made some tough choices in a tough environment, and now that a glimmer of light appears at the end of the tunnel, those choices are about to be rewarded,” he said.

The company said its cash position at year-end is expected to be higher than the £422m position six months ago, with prices remaining stable throughout the period and construction cost inflation low on most transactions.

Late last month, Berkeley announced a payout of 33p per share, up from 69p a year ago. The company said the dividend, together with the share buyback programme, will return £227 million to shareholders by the end of September.