Berkeley Group Holdings issued a relatively upbeat trading statement on Friday in which the housebuilder said they were maintaining their profit guidance and were receiving a decent level of enquiries.
The emphasis here is ‘relatively upbeat’. The company, like most housebuilders, is suffering from higher mortgage costs and their reservation rates have crumbled.
Despite the risks from a deteriorating macroeconomic picture, Berkeley was confident enough to reaffirm its pretax profit guidance of £1.05bn for the coming year.
“We’ve seen a similar story across the rest of the housebuilders this earnings season. It looks like the recent interest rate hikes pushing up mortgage costs are causing a relative lack of urgency among new buyers as private sales reservations dropped 35%,” said Aarin Chiekrie, equity analyst at Hargreaves Lansdown.
“Pricing’s remained resilient though, due to the constrained supply of new-build and second-hand homes, giving Berkeley the confidence to reiterate its guidance for £1.05bn of pre-tax profits across the coming two financial years, weighted slightly towards the current year. That represents declines of around 10% in consecutive years.
“In the meantime, Berkeley’s taking action to protect its financial resilience by carefully matching its supply with demand and completely stopping spending on new plots of land. That’s expected to keep net cash at £325m by the end of October, down around 20% since April but should be enough to help cushion the impact of lower sales in the near term.”
Chiekrie highlighted a competitive advantage Berkeley has over its peer group in as far as the homebuilder is focused on London and is likely to enjoy more resilient demand than elsewhere in the country.
“Looking bigger picture, Berkeley’s London focus offers something different to peers, and demand in the capital’s likely to remain more robust than other areas of the country. Add to the mix that the UK housing market’s suffering from a fundamental supply shortage, and the long-term picture doesn’t look so bleak. But in the short term, there’s plenty of stormy clouds for Berkeley to weather.”