Berkeley shares slide despite reporting profit growth

London-focused housebuilder Berkeley has seen its share price slide despite announcing a 6.4% increase in pre-tax profit in company results for the year to April 30.

Berkeley said trading at the business remained “stable”, despite fears over the state of the market, with trading in the new financial year in line with the end of the last, but warned over the potential for a “volatile” operating environment to impact upon supply and demand.

Shares in the housebuilder fell back more than 5% on the news in early trading, wiping £200m off the £4bn value of the firm, with the losses compounding falls in the value of the company seen on Monday.

Berkeley said it made pre tax profit of £552m in the year, above the £545m expected, on revenue of £2.35bn, up 6.6% on 2021 results.

It also confirmed its previous guidance that its March purchase of the share of the St William joint venture from the National Grid, meant that it was on course to deliver profit targets for the next three years a year early, with pre-tax returns rising to £600m next year and the £625m and beyond then.

The firm built 3,760 new homes in the year, up from 2,825 in 2021, at a gross margin slightly down at 28.3%. The firm’s forward sales grew to £2.17bn at the year end compared to £1.71bn in the previous year, but its net cash position slumped to £269m, from £1.13bn at the same point in 2021, reflecting the investment in the St William joint venture.

Berkeley’s statement gave few concrete numbers around current trading, the cost of fire safety repairs, and how it was being impacted by construction cost inflation, beyond stating that “on a blended basis across our portfolio we have been able to absorb these cost pressures through sales pricing.”

And the firm did give a variety of warnings around the potential impact on trading of the current economic, political and regulatory uncertainty in the light of Brexit, covid, the war in Ukraine, the fire safety crisis and the new tax burdens flowing from that. Chief executive Rob Perrins said: “The economic and operating environment remains volatile with inflation, labour and materials shortages, interest rates and regulatory costs of development all having the potential to impact supply and demand.”

The results statement also said the firm was concerned about “supply chain disruption, increased taxation, inflation and concerns over future economic growth”. It said: “Our industry has also seen regulatory developments in building safety, including the Building Safety Pledge and RPDT [Residential Property Developer Tax], carbon related taxes and the Levelling Up and Regeneration Bill. These factors inevitably risk impacting companies’ capacity and appetite for investment and innovation.”

Regarding the government’s planning reforms, the firm said there was a also risk the government’s “laudable aims” were achieved “at the cost of limiting housing delivery and its social and economic benefits.”

It also admitted that two of its London regen schemes were currently subject to planning “call-in” by the secretary of state.

However, overall Berkeley stated that it remained in “a great position to deliver on its ambitions and those of our stakeholders and wider society.”

Shane Carberry, equity analyst at Goodbody said the results were positive, despite concerns that demand for new homes could drop due to rising interest rates. He said: “While inflation and interest rates both continue to rise, so do house prices, albeit at a slightly slower rate than earlier in this year.

“[Berkeley] also noted that the cost inflation it is seeing continues to be absorbed by house prices inflation and as such, Berkeley Group remains in a strong position to meet its forecasts.

“In these challenging economic times, Berkeley continues to be an attractive option to investors, thanks to its c.7% dividend yield and its consistent ability to deliver against its longer-term profit guidance.”