Barratt says full year numbers will be ahead of expectations

Housebuilder Barratt has increased its volume expectations for the year despite seeing completions for the six months to December 31 drop on the previous year.

Reporting half year results, the business has said it now expects to build as many as 18,250 homes in the full year to June, around 1,000 up on last year and significantly ahead of the 17,856 reported in 2019, prior to the pandemic.

This is around 250 homes up on prior guidance, and comes after reservations per site per week for the six month period rose to 0.79, up on the 0.77 the year before.

However, actual completions for the six months to December were down 11.1% to 8,067, when compared against the last financial year, which had benefitted from a surge in completions in the second half of 2020 in the immediate wake of the spring lockdown.

Barratt said the reduction in completions, which caused revenue to drop by 9.9% for the first half to £2.25bn, simply reflected a return to a more normal seasonal pattern, where higher completion levels are expected in the second half of the financial year.

The firm said it increased its operating margin to 19.3%, despite rising build cost inflation, and reported overall pre-tax profit for the six months of £433m, up 0.6%.

The firm also said that net private reservations per site per week for January were running at 0.90, 16.9% above the 0.77 rate in the equivalent period in 2021, “reflecting continued strong demand”.

David Thomas, Barratt chief executive (pictured), said the firm had delivered “an excellent first half”, and that a “strong rebound in our construction activity” meant it would now build more homes than previously expected and more than “pre-Covid levels.”

He said: “This increase in construction activity has not affected our focus on our customers, on quality and service and on acting in a responsible and ethical way. We continue to work hard to lead the industry in building the high-quality sustainable homes and developments the country needs.”

However, Barratt said it wrote off a further £15.9m in the period to pay for “costs associated with legacy properties” and admitted that the government’s decision to call for housebuilders to contribute an extra £4bn to cladding remediation costs meant that “it is possible that further commitments may be made by the Group as work progresses or as Government legislation or regulations develop”.

It said that build cost inflation had run at about 5% in the first half of the year, but that this was expected to rise further to around 7% in the second half of the financial year, which “reflects inflationary pressures across the economy and specific areas of building material cost inflation related to commodity input cost pressures and energy intensity”.

Barratt said that despite its recent acquisition of land trader Gladman, the firm would continue to operate as a separate entity within the group, supplying sites both to Barratt and to other housebuilders.

Shane Carberry, equity analyst at Goodbody, said Barratt had made a “strong start” to its 2022 financial year, “despite notable sector headwinds including high build cost inflation”.

“Build cost is expected to be higher in the second half of the year at approximately 7%, however, Barratt are confident that the adjusted gross margin for the year will increase to around 25%,” he said.

Walid Koudmani, market analyst at financial brokerage XTB, said that the build inflation figures were the biggest concern over Barratt’s future performance. He said: “Barratt Developments report exceeded expectations and pointed to a stronger recovery from covid levels with over 18,000 home constructions and solid revenue figures.

“It remains to be seen if the company will manage to successfully implement its strategy or if it will encounter issues driven by record inflation and potential supply chain disruptions.”

Barratt’s share price initially rose by as much as 3.7% on the news, but was trading around 1% down on last night’s close by 10AM.