Like all UK housebuilders, Berkeley Group has had a tough time of it over the past year and this was reflected in falling revenues and profits over the past year.
Revenue fell 3.4% to £2.5bn while pretax profit sank 7.7% to £557m.
The constraints of higher interest rates is an all too familiar story for housebuilders who have posted consistently poor results since rates started to rise. Berkeley used the word ‘challenging’ five times in the release issued this morning, including in the first line.
Investors never like to see that word in an update. However, it does reflect a well-documented UK housing slowdown beyond the group’s control.
Despite the soggy conditions for housebuilders, investors will be encouraged with the group’s willingness to realign its business model to adapt to the current market conditions. The demand from rental accommodation has not gone unnoticed by Berkeley Group who have earmarked 4,000 homes to be rented out over the next ten years.
“Berkeley is set to enter the London rental market,” said Matt Britzman, equity analyst at Hargreaves Lansdown.
“Full-year results were slightly better than expected, and the London-focused builder is flexing its strong balance sheet to pump cash back to shareholders. The market is still soft, but green shoots are emerging, and commentary was fairly upbeat given the tricky conditions. Guidance for the coming year has been notched up, and with interest rates expected to start their journey down later this year, the near-term outlook is looking better than it has been for some time.
“Perhaps the bigger news is that Berkeley is planning a move into the London rental market. Eager to capture some of the soaring rental demand in the area, some 4,000 potential homes have been identified to make up the first tranche of a rental portfolio. This won’t be an overnight move; it’s expected to take around ten years to build the homes and get everything up and running, but it would add another string to Berkeley’s bow.”