London-centric builder of upmarket homes ups its long-term forecast after reporting profits of £533m and revenues of £1.6bn
Housebuilder Berkeley Group has posted a 36% leap in half-year profits and raised its profit expectations, despite warning of Brexit uncertainty.
Berkeley, which specialises in building upmarket homes in and around London with average sale price of more than £700,000, reported profits of £533m for six months to 31 October. Revenues were up nearly 14% to £1.6bn in the same period. The company said it now expected to make £3.3bn in pretax profits in the five years to 2021, up from its previous estimate of £3bn.
Shares in the FTSE 100 firm rose by more than 9% higher to £42.08 after the surprise upgrade, closing up 8.4% at £41.68. It was the biggest one-day rise this year for Berkley, whose shares were trading at just over £24 a year ago.
The firm built 2,117 homes in the six-month period, 41 more than the same period a year earlier. The average selling price rose from £655,000 to £719,000, which the builder said was owing to a change in the mix of houses constructed.
Berkeley’s founder and chairman, Tony Pidgley, described the political climate for housebuilding as turbulent but added: “Where there is stability, the potential for growth and delivery remains strong.” The company welcomed the increased target in the draft London plan of 66,000 new homes a year, announced by the city’s mayor, Sadiq Khan, last week.
The company said its five-year profit upgrade would have no bearing on its controversial executive bonus scheme. Earlier this year, Berkeley capped future payouts under the scheme, which runs until 2021, after criticism from shareholders and advisory groups.
This means Pidgley and his chief executive, Rob Perrins, will each get a maximum share award of £8m a year, starting this year. The top five Berkeley executives can earn up to £21.25m from the 2011 scheme this year. Including base salary and annual cash bonuses, they are in line for up to £27.6m.
Last year, the Berkeley bosses were handed bonuses worth £85m under the share scheme. Including salary and annual bonuses, the total payout was £92m, with Pidgley getting £29m and Perrins £28m.
Perrins said Brexit uncertainty and concerns over economic growth and inflation, coupled with changes to stamp duty, continued to drag on the housing market.
“There remains good underlying demand for property in London and the south east, but the combination of uncertain UK economic and political outlook and high property taxation continues to mean customers are more circumspect and inevitably purchasing later in the development cycle,” he said.
He added that there was still good demand from overseas buyers, who were benefiting from the weaker pound.
George Salmon, equity analyst at Hargreaves Lansdown, said: “Higher stamp duty on premium properties, plus Brexit uncertainty and economic weakness, means the outlook for Berkeley’s domestic buyers remains relatively uncertain.
“However, with selling prices typically over £700,000, Berkeley isn’t dependent on the average Brit for sales. One of the main positives coming out of these results is that demand is holding up well among overseas buyers.
“After the initial panic following the Brexit vote, the group has consistently delivered impressive results. The longer this goes on, the more faith investors will have in Berkeley’s generous shareholder returns programme, which looks set to see the group return another £1bn over the next four years.”
The chancellor’s announcement of a review into homebuilders’ land banks and unused planning permits led to a selloff of shares of large firms including Berkeley after last month’s budget, but they have largely recouped their losses since then. Housebuilders have been accused of sitting on land.