Berkeley Group anticipates further decline in profits, but cash piling up

The company posted a 20.7% decline in full-year pre-tax profits to reach £775.2m, for an 18.1% drop in its basic earnings per share to 481.1p.

That was nevertheless at the top end of market expectations, the company said, leaving it 18% ahead of its December 2016 plans for £3.0bn of profits for the five years ending on 30 April 2021, despite the "extended macro and political uncertainty".

"In the first three years of the plan [announced in 2016], Berkeley has increased its net cash position from £107.4m to £975.0m, a level which represents under-investment commensurate with the uncertain operating environment," management said.

"Notwithstanding this, and the high level of profit delivery over this period, Berkeley has maintained the estimated gross profit in its land holdings at over £6.0 bn."

Versus the year ago period, revenues rose 4% to £2,957.4m.

Over the course of the financial year ending on 30 April, the luxury homebuilder added 14 new sites, comprising 8,700 homes, to its landbank, and obtained nine new planning consents.

The company's net cash position at period end stood at £975.0m, which was 42% higher than a year before, although cash due on forward sales fell by roughly 18% to £1.8bn.

In parallel, the full-year dividend payout declined by £93.7m to £53.0m with the company opting instead to increase its share buybacks by £58.5m to £198.9m, for a total shareholder return over the year of £251.9m, which was down by £35.2m on the prior year.

The amount that Berkeley would return via dividends over the front half of the new financial year would be announced on 15 August, Berkeley said.

For the year ahead, management guided towards a one third drop in pre-tax profits versus 2018/19, with return on equity anticipated to settle at about 15% thereafter.

But the company did extend its planned annual shareholder returns of £280.0m to 2025.

Commenting on the builder's latest set of results, analysts at Canaccord Genuity said there were no "material changes" to the company's outlook and guidance and although its outlook for the 2020 financial year was between 5-0-6.0% below consensus and looked "cautious", "the Group has consistently delivered better than expected".

"Clearly the obvious macro and political risks remain, but the Group is in great shape and continues to deliver results materially ahead of expectations," the Canadian broker said.

"Margins and profits are expected to normalise from here but assuming market conditions hold up, we expect the Group to continue to deliver strongly. Valuation is broadly in line with sector averages on a price to book basis, which looks unmerited on balance, despite the relative risks to its core London and South-East market."

For his part, David Madden, market analyst at CMC Markets UK, highlighted the impact of Brexit uncertainty on the London market, noting "evidence of asking prices coming down" and telling clients that "some potential buyers have been holding off such a big outlay until there is clarity with regards to Brexit."

Also of import, one of its developments in Birmingham, the UK's second-largest city, was near a proposed HS2 station, but it remained to be seen whether the rail scheme would go ahead.

And then there was the risk of a general election, Madden said.

"Mr Corbyn isn't exactly pro-business, and the overheated London property market is likely to come under pressure should a Corbyn-led government seem likely."

As of 0906 BST, shares of Berkeley were rising by 0.81% to 3,588.0p.