Wednesday preview: Housebuilders results to be surveyed
(ShareCast News) - House building takes centre stage on Wednesday, with results from Barratt Developments, Berkeley Group and McCarthy & Stone.
Barratt will post annual results that follow a July trading update where it unveiled 17,395 completions and said profit before tax was expected to increase to around £765m, with net cash of £720m, so scope for surprises seems limited to guidance further forward.
For the year ahead management have guided to "modest growth" in completions and a drive towards improving operating margin.
"We believe the greater focus of the update will be any update on medium-term targets, specifically in terms of margin improvement," said Deutsche Bank.
UBS expects flat volumes of 17,629, average selling price growth up 6% to £275,000, PBT of £765m and EPS of 61.4p.
Agreeing that the key focus will be on guidance, the Swiss bank expect around +1% volume growth, 3% ASP growth and PBT growing +6%.
"Barratt has previously communicated on potential for margin improvements, which are towards the lower end across the industry. While we do not expect specific margin targets, we expect gross margins to expand to around 22% over time and operating margins to around 19%."
Retirement housebuilder McCarthy & Stone will give an update on its year to end-August, with its own July update guiding to a lower number of reservations and completions flat, sending consensus PBT down to £95m.
Underlying trading conditions were said to be stable though there had been some slowing of sales momentum in the summer weeks "due to the uncertainty created by the General Election".
There was "good progress" in rebuilding the forward order book to address the shortfall brought into the year following the EU Referendum and in light of the uncertainty in the market the company cautioned that "it is possible that there may be a modest impact on the timing of conversion of existing reservations into completions".
While the company achieved the required reservations for the full year target at the time of the last update, said Deutsche Bank, "investors will want to see that these have been converted with no step up in incentives (or impact on margin)".
"After seeing the most significant impact in the sector post Brexit, investors have become nervous of the end market demand profile for McCarthy's product and consensus remains well short of management's target of 3,000 completions in FY19."
Berkeley Group is reporting on its first quarter's trading, having grown PBT 53% in the year to 30 April.
At the time of final results, Berkeley said it had net cash of £285.5m and forward sales of £2.74bn to "give good visibility of profitability and cash flow". With the South East housing market under-supplied with low interest rates and good mortgage availability, management reiterated guidance of delivering at least £3.0bn of PBT over the five years to 2021, "assuming the return to normal market conditions continues".
At the time reservation rates had recovered to 2015 levels and UBS predicted that figure has increased but did not expect guidance to change at this point.
Numis felt Berkeley's final results signalled that the London housing market was stabilising and that the main focus on Wednesday will be on management's comments surrounding market conditions and how the forward order book has moved. Analysts expect it to have declined slightly from the £2.74bn reported.
Big data software provider WANdisco is due to report interim results, having provided a trading update in July where it reported bookings growth of 73% to $10.2m including 173% growth in Big Data to $7.0m.
The focus will likely be on the outlook for H2 and the expected ramp-up of the IBM OEM channel sales and the progress of developing new routes to market such as in the cloud with Amazon, said UBS.
"A cash burn rate of just $0.6m in H1 17 means there is no real time pressure to deliver on this, but the share price likely anticipates a continued acceleration in the business we believe."
Wednesday September 06
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Barratt Developments, Diurnal Group, McCarthy & Stone
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Inchcape, Lancashire Holdings Limited, Man Group
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