Barratt Developments, one of the UK’s largest housebuilders, reported a mixed performance for the financial year 2024, reflecting the ongoing challenges in the housing market caused by high interest rates and the cost-of-living crisis.

Indeed, the word ‘challenging’ was used twice in the company’s outlook. Investors will hope the new Labour government acts quickly to improve conditions for builders.

The company saw a slight improvement in its net private reservation rate, which rose to 0.58 per active outlet per week, up from 0.55 in the previous year. This 5.5% increase was partly bolstered by sales to the private rental sector and registered providers of social housing.

However, total home completions fell significantly to 14,004, an 18.6% decrease from the 17,206 reported in FY23. The decline was more pronounced in the first half of the year, with a 28.5% drop, while the second half saw a more modest 8.7% reduction.

The average selling price also saw a downturn, with the total ASP falling to approximately £307,000, compared to £319,600 in the previous year. The private ASP experienced a more substantial decrease of 6.4%, dropping to about £344,000.

Despite these challenges, Barratt’s forward sales position remained relatively stable. As of 30 June 2024, the company reported total forward sales of £1,912.3 million, representing 7,239 homes. This is down from £2,223.4 million and 8,995 homes at the same point last year.

Looking ahead, Barratt anticipates a further reduction in completions for FY25, projecting between 13,000 to 13,500 homes. The company attributes this to lower land buying activity in recent years and a forecasted 9% reduction in average sales outlets for the coming year.

Barratt’s problems were summed up by its CEO’s comments, who chose to focus on build quality and the balance sheet amid a slowdown in completions, which will concern some investors.

“Whilst we continue to navigate a challenging macroeconomic backdrop, we are delivering industry leading build quality, sustainability and customer service. Combined with the strength of our balance sheet, this has ensured we remain resilient and responsive through the cycle,” said David Thomas, Chief Executive.

Diversified Energy Company PLC has announced the acquisition of high-value natural gas assets from Crescent Pass Energy for £84 million ($106 million).

The deal, expected to close in Q3 2024, will bolster Diversified’s presence in eastern Texas with 827 net operated wells and over 170,000 acres of commercially attractive leasehold.

Funding for the acquisition comes from a mix of sources. Diversified will harness its NYSE listing to issue approximately 2.4 million new US dollar-denominated ordinary shares directly to the seller. The remainder will be financed through a senior secured bank facility and existing liquidity.

The purchase price represents a PV-20 valuation, signalling Diversified’s confidence in the assets’ long-term value. At £2,100 ($2,651) per flowing Mcfe, the deal is attractively priced within the company’s target range.

Current net production from the assets stands at 38 MMcfepd, with low annual declines of around 9%. This aligns well with Diversified’s strategy of acquiring stable, long-life assets. Estimated next twelve months EBITDA of £20.6 million ($26 million) represents a 3.8x purchase multiple.

“The target assets are a perfect fit with our existing East Texas operations and offer meaningful opportunities for cost efficiencies upon completion of the Acquisition,” said CEO Rusty Hutson, Jr.

“The accretive transaction adds scale to our Central region footprint and remains consistent with our strategy to focus on high-quality, low-decline producing assets at attractive PV values where we can apply our Smarter Asset Management approach to enhance margins and grow free cash flow.

“The evolution of our funding sources, illustrated by the use of direct equity issuance to the seller as a portion of the consideration, highlights the importance of our recent NYSE listing while providing additional financial flexibility. Our Company has a long-standing, demonstrated track record of delivering value to shareholders from our strategy of acquiring, optimizing, and managing mature producing assets, making us the Right Company at the Right Time.”

After a bump higher following the elections last week, the FTSE 100 paused on Tuesday as the index traded around breakeven with a clear interest in defensive sectors.

Severn Trent, United Utilities, National Grid and gold miner Endeavour were among the top gainers as investors favoured those companies with ‘safer’ attributes.

“The FTSE 100 closed broadly flat yesterday and has opened today in a similar fashion, without too many catalysts to drive a move either way. Housing sector investors welcomed Rachel Reeve’s speech yesterday and new supply pledges helped a slew of listed builders tick higher,” said Matt Britzman, senior equity analyst, Hargreaves Lansdown.

The housebuilders have provided support for the index in recent sessions, but the buying pressure started to ebb on Tuesday after Vistry released a positive trading update that didn’t wow investors.

Vistry shares slipped in early trade but picked up as the session progressed, although housebuilders Persimmon, Taylor Wimpey, and Barratts remained fairly static.

An update from BP provided the biggest counterweight to buying activity in defensive stocks. The company said production is fairly flat, and lower oil prices were curtailing any potential excitement from refining margins.

“The FTSE 100 ticked higher on Tuesday despite a weak update from index heavyweight BP acting as a drag on the market,” said AJ Bell investment director Russ Mould.

“A teaser ahead of second-quarter results later this month from BP suggests they won’t be a winner.

“The major issue is a big hit to refining margins, reflecting both market dynamics but also operational issues for the company. These factors also underpin guided impairments of $1 billion to $2 billion for the quarter. The broad range left the market with some uncertainty over how the second-quarter numbers will land.”

Vistry is showing signs of life after the house builder said it expects profits to rise as its partnerships model leads outperformance compared with the rest of the sector.

After recently earning promotion to the FTSE 100, Vistry has hit the ground running releasing an upbeat trading statement highlighting improving demand and an expected 10% increase in adjusted operating profit for the full year.

Investors will be encouraged by the bullish outlook for completions as the company said it expected to deliver over 18,000 completions during the full year – a sharp jump from last year’s 16,118 completions.

Higher profits and completions guidance were underpinned by rising sales rates which hit 1.21 in the first half of 2024 compared to just 0.86 in the same period last year. 

“It has been a good week for builders following Labour’s election win and bold housing pledges. Vistry Group will look to reap the benefits as demand for affordable homes should see the firm’s profit rise around 7%,” said Adam Vettese, analyst at investment platform eToro.

“This is quite the turnaround from long-term material cost increases due to inflation, as well as a slow rate cutting cycle dampening the market for new home sales. Cost pressures are starting to ease and the first rate cut is likely just around the corner, so if the new government is true to its word it could be a great time to be in the housebuilding sector.”

Shares were slightly down on Tuesday after the stock embarked on a robust rally in the run-up to last week’s election.

The new Labour government’s approach to housebuilding will be highly supportive of Vistry’s business model and promise favourable outcomes for investors. The election victory was well-telegraphed by the polls, and investors bid the housebuilding sector up in the preceding weeks. However, the sector dipped in the wake of the election in a classic ‘buy the rumour, sell the fact trade’.

“A Labour government could provide a tailwind for Vistry compared to other traditional homebuilders. With promises of 300,000 houses annually, they are expected to release more land and offer taxation support, along with backing on planning, particularly for affordable housing,” said Yanmei Tang, Analyst at Third Bridge.

This little software solutions business, which is capitalised at just under £12m, is now beginning to turn around from losing money over the last three years.

Recent new business wins and existing contract renewals will help to drive its ARR to well over 75%.

I like that, especially if ongoing operating costs can be contained tightly enough to see good bottom line results in due course.

The Business

The itim Group (LON:ITIM) was established in 1993 by its founder, and current CEO, Ali Athar.

Initially it was a consulting business, helping retailers’ effect operational improvement, before six years later expanding into the provision of proprietary software solutions.

By 2004 it was focused exclusively on digital technology.

Over the years the company has grown both organically and through a series of acquisitions of small, legacy retail software systems and associated applications which itim has redeveloped to create a fully integrated end to end Omni-channel platform.

Today is principally operating as a Software-as-a-Service (SaaS) based technology company.

It enables the store-based retailers to optimise their businesses to improve financial performance.

Its solutions include Unify Sales, Unify Stock, Unify Pricing & Promotions, Unify Supply and its Profimetrics AI Suite, which is a multi-level management, simulation and optimization engine. T.

It has developed an omnichannel platform that enables retailers to adopt an engaging customer-centric approach to shopping in-store, online and on mobile.

Its retail software solutions support multi-channel sales and service, enterprise order management, price and stock optimisation, and supplier management.

Recent Big-Name Wins

In late February it won a five year multi-million-pound contract for its Omni channel retail platform with QUIZ clothing, a fashion retailer specialising in occasion wear and dressy casual wear with 73 stores and 274 concessions in the UK.

Two months later it announced an additional services contract for its Unify platform with toy retailer The Entertainer which is opening in over 800 Tesco stores across the UK and Ireland.

In the middle of May it announced a five year multi-million-pound contract renewal with Majestic Wine, the UKs largest specialist retailer with over 200 stores.

Earlier this month it announced that it had signed a five-year multi-million-pound contract with Assaí Atacadista, the largest Brazilian wholesaler, with more than 300 stores.

The Equity

There are some 31.2m shares in issue.

Larger holders include the Athar family (38.40%), Lewis family (18.07%), Robert Frosell, Dir (7.64%), Herald Investment Management (6.37%), Curtis family (4.12%), Ian Hayes, Dir (2.72%), Michael Jackson, Chmn (1.76%), Sandra da Costa Ribeiro, Dir (0.87%) and Justin King (0.742%).

Analyst View

Charlie Cullen and John Cummins at WH Ireland consider that this group’s shares are trading on an undemanding rating compared to their ‘fair value’ of 55p a share.

For the current year to end December they have estimated revenues of £17.0m (£16.1m), with its pre-tax loss easing to just £1.0m (£1.1m), leaving the company with £0.5m cash at bank.

For next year the analysts see a turn into profits of £0.4m on the back of £19.0m in revenues, generating earnings of 1.8p per share and with a doubling of cash at bank of £1.0m.

My View

This group’s shares are already allowing for a substantial improvement in profitability, sufficient to justify an even higher market price.

Its growth in revenues is steady and that should result in greater bottom-line results.

Just two years ago the company’s shares were trading at 125p, since when they have been as low as 20p in December last year.

They touched 46p in early March ahead of announcing its 2023 results.

The shares have held steady since the mid-May AGM Statement, and appeal at around the 37p level.