Barratt Developments shares rally as company announces it will repay £25m in furlough fees

Residential property developers Barratt Developments plc (LON:BDEV) have announced that they are set to begin the new financial year with “cautious optimism” on the back of surprisingly resilient trading figures, and intend to pay back a total of around £25 million in furlough fees as it welcomes back its staff.

The company’s share price has rallied an impressive 6.67% on the news.

Incredible resilience, flexibility and commitment

Barratt – which is the UK’s largest housebuilding firm – released a trading update for the year ending 30 June 2020, outlining its “resilient” balance sheet with “year-end net cash of around £305 million (30 June 2019: £765.7m)” and “land creditors at around £800 million (30 June 2019: £960.7m)”.

The firm’s forward order book is looking decidedly rosy, with total future sales as of 30 June 2020 standing at 14,326 homes (30 June 2019: 11,419 homes), at a combined value of £3,249.7 million (30 June 2019: £2,604.1m).

Since reopening all of its operational sites, the company has recorded “high customer interest levels”, with net private reservations per outlet almost on par with the previous year at 0.63 (2019: 0.69) per week for the last six weeks running.

Barratt “acted quickly” at the start of the coronavirus pandemic, closing all of its offices, construction sites and sales centres on 27 March 2020. The firm cancelled its interim dividend – which was due in May – and implemented a voluntary 20% reduction in base salary for “Executive Directors, the wider Executive and Regional Managing Director team, the Chairman and the Non-Executive Directors”.

Although home completion rates were significantly impacted by the lockdown – only 12,604 total homes built including joint ventures during the year, compared to 17,856 in 2019 – the company’s strong forward order book and encouraging balance sheet offset the otherwise disappointing figures.

During the government’s mandatory lockdown scheme during the peak of the pandemic, some 85% of Barratt’s 6,700 UK employees were placed on furlough. The company’s surprisingly strong results at the end of the quarter have afforded Chief Executive David Thomas the opportunity to pay the government back in full.

In a message included in Barratt’s trading update, Thomas commented:

“Prior to the Covid-19 pandemic, the group was delivering a strong year of progress on both volume and margin. The pandemic has caused significant disruption, but our highly skilled and experienced team have shown incredible resilience, flexibility and commitment, both through the peak of the crisis and in the careful reopening of our sites”.

Optimism “not founded on thin air”

AJ Bell investment director Russ Mould weighed in on Barratt’s news, and was keen to congratulate the firm on its better than expected performance:

“Any kind of optimism is welcome in the current climate, cautious or otherwise, so the tenor of today’s trading update from Barratt Developments struck a chord with the market. This optimism is not founded on thin air. The company has a growing order book, has seen high customer interest levels since the reopening of its sales centres, and it now has all its sites up and running”.

Of course, there was not a complete crop of good news; Barratt’s home completions were badly impacted by the lockdown, and no doubt played a part in the near-paralysis of the UK housing market at the peak of the pandemic.

“There was some bad news to balance out the good in Barratt’s statement – inevitably completions were down in the 12 months to the end of June and the average asking price also fell. Dividends remain off the table, but it doesn’t appear as if the market was expecting anything different on that score”.

To stir the market back into action, Chancellor Rishi Sunak is set to announce a stamp duty holiday on properties under £500k as part of a “mini budget” on Wednesday. The news is sure to be welcomed with open arms, but while the market is in desperate need of liquidity, first-time buyers are still set to struggle to get onto the ladder in the first place.

Investor insight

Meanwhile, Barratt’s share price has climbed 6.67% or 32.70p to 523.00p BST 13:41 06/07/20 on the back of the firm’s optimistic figures. The company’s dividend yield sits at 0.056% and its P/E ratio at 7.15.