Barratt Developments lifts sales rate as demand remains strong

Around seven weeks from its year-end, the FTSE 100 company reported a sales rate of 0.75 net private reservations per active outlet per week, up from 0.74 last year and 0.66 in the first half of the year.

Growth in forward sales at 8 May had dropped to +11% for private developments having been at +13.5% in February, with total forward sales up 9.7% on the prior year.

"We remain on track to deliver the expected improvement in performance for the full year as we maintain our focus on disciplined volume growth, improving our key financial metrics and delivering attractive cash returns," said chief executive David Thomas.

Barratt launched 51 new developments in the period, with the average number of active sites falling from 404 in 2015 via 386 in February to 376 by early May, which was said by one analyst to reflect continued pressures in planning despite the steeply rising supply of developable land, and another to the strength of demand enabling it to speed sales faster than anticipated.

Opportunities to buy further land remain "excellent" with between 21,000-23,000 plots in line for approval in the current financial year.

Thomas is continuing to target a minimum gross margin of 20% and minimum return on capital employed (ROCE) of 25% by the 2017 financial year, along with future cash returns of £678m over two years to November 2017.

Analyst Robin Hardy at Shore Capital said that the company is looking to re-balance trading between the two halves of the year to remove the build and delivery pressures that had built up historically in the second, so the current period "is likely to appear weaker both against H1 and the prior year - but this is through policy".

"We remain concerned about Barratt’s lack of growth ambition, the size of the pseudo-debt position via land creditors, the weaker margins than the peer group and the lower ROCE if calculated prudently, treating land creditors as debt. These concerns and the feeling of greater feeling of risk that surrounds this stock continue to drive a discount in the target PE ratio we use to set fair value."

Analyst Charlie Huggins at Hargreaves Lansdown noted that shares in housebuilders have been down of late, as measures such as price-to-book and cyclically adjusted price to earnings, mean the sector looking is trading at high valuations relative to history, meaning it could be vulnerable should the housing market slow.

"For now though, market conditions look set to remain favourable, suggesting the housebuilders' purple patch could last a while longer."