Berkeley Group shares dipped on Friday after the housebuilder said sales volumes had fallen in the six months to 31st October. Yet, the company produced higher profit before tax than in the same period a year ago.

The news encouraged investors to book profit in the FTSE 100 homebuilder after a 20% rally from October lows. Berkeley Group shares were down 2.1% to 4,836p at the time of writing.

Berkeley said the ‘market lacks urgency’ and their sales rates were around a third lower in the half year compared to the prior financial year. The cash due for forward sales declined to £1,964m as of 31st October from £2,136m 30th April 2023.

Despite falling sales volumes, Berkeley Group’s profit before tax rose 4.6% to £298m in the period. The company said it had achieved £10m in operating cost savings and was starting to see build cost inflation stabilise.

Rising profit for a housebuilder is a rarity in 2023 and it will put Berkeley Group in good stead when interest rates are eventually cut and mortgage rates ease.

“Berkeley Group is sitting on some solid foundations, allowing it to weather the cyclical nature of the housing market,” said Aarin Chiekrie, equity analyst at Hargreaves Lansdown.

“High mortgage costs are causing a relative lack of urgency amongst potential buyers, and that’s seen Berkeley’s sales rates fall in the first half, in line with wider trends across the sector.”

“But with Berkeley, there’s scope to outperform its peers on this front in the new year. Domestic and international demand in the key London market is likely to remain more robust than in other areas of the country, and the housing supply shortage doesn’t look to be going anywhere soon. The tight supply of homes on the market and the group’s higher-end product, with higher average selling prices of around £624,000, are helping to offset lower sales volumes.”

The FTSE 100 traded with a cautious tone on Thursday ahead of key US jobs numbers tomorrow and central bank meetings next week.

London’s leading index was flat at the time of writing, having bounced off lows of 7,480 earlier in the session.

Investors will be bracing for US jobs numbers and a gauge of the strength of the US economy. Markets have quickly priced in rate cuts early next year, providing support for equities, particularly US stocks.

The headline Non-Farm Payrolls report due to be issued tomorrow is widely considered to be the world’s single most important data point. Economists predict the US added 185,000 jobs in November, up from the 150,000 added in October.

Should the actual number significantly beat estimates, it would dash hopes of softer rates in early 2024.

“US jobs numbers tomorrow and central bank meetings next week could inform the market if it has got carried away with the level of rate cuts which are now being priced in for 2024,” said AJ Bell investment director Russ Mould.

This uncertainty was weighing on markets Thursday. In addition, weaker oil prices dented enthusiasm for commodity-heavy UK equity indices.

“Oil prices continued to slump as oil exports from the US surge,” Russ Mould said. “A weaker crude market should at least help on the inflation front but it is not good news for two of the FTSE 100’s heavyweights: BP and Shell.”

BP and Shell were marginally lower at the time of writing after bouncing back from harsher losses at the open on Thursday.

Rising UK house prices

Housebuilders and companies exposed to the property market were a bright spot for UK markets. According to data released by Halifax, UK prices gained 0.5% in the month to November as a lack of supply drove higher prices.

“House prices rose in November, for the second consecutive month. And while sellers still face the tricky business of persuading someone to buy before they can realise these higher prices, we’ve had some more positive news on that front too. It has been a good month for a tough market, but we can’t get carried away just yet,” said Sarah Coles, head of personal finance, Hargreaves Lansdown.

“House prices are robust, and the annual fall is now a modest 1%. In the next couple of months, as we compare to lower prices a year earlier, we could climb back into positive territory on an annual basis, especially if we see more monthly rises.”

The news buoyed housebuilders, with Taylor Wimpey gaining 0.9% and Barratt Developments rising 0.8%.

Rightmove was one of the FTSE 100’s top risers, gaining 1.7%.

Reflecting the cautious tone in markets, utility companies National Grid, United Utilities, and Severn Trent were among the best performers on the day.

Eurasia Mining shares sank on Thursday as investors reacted to the news the company had made little progress in the disposal of its Russian assets or sales of stockpiles worth £3.5m.

The Company said it has prioritised the sale of its Russian assets, but no binding agreements have yet been reached. Shareholders were seemingly unimpressed with assertions that active discussions continue with counterparties in Hong Kong and Russia.

Eurasia Mining shares were down 28% at the time of writing.

In addition to an update on their asset sale, Eurasia provided an overview of their ongoing operations. The company has enough cash to see them through the first quarter, but there are uncertainties around the funding situation past this.

As of 30th November, the Company had approximately £517,000 in cash reserves, held outside Russia and not exposed to ruble fluctuations.

The Company has sufficient working capital through the first quarter of 2024, without the proposed sale of £3.5 million in unsold concentrate inventory. Discussions around the sale of concentrate stockpile from the West Kytlim mine are ongoing, but have been for some time now.

The West Kytlim mine and infrastructure are being maintained for sale. No production is expected in 2024, as in 2023. The 2022 concentrate stockpile is securely stored off-site, with sales discussions ongoing.

A new license was recently acquired for the promising Travyanaya area, which will be added to assets available for potential sale. No work is planned there in 2024.

The Monchetundra and Nyud projects have no planned reserve updates or expenditures. The Nyud expenditure was written off in 2022 results after the expiration of the Rosgeo Agreement.

Smart Metering Systems shares soared on Thursday after the power metering company received an offer from a US private equity group, KRR, with $528 billion in assets under management.

The latest approach for a UK company by US private equity shows that although domestic UK investors do not want to acknowledge the value in UK stocks, leaving them to languish at historically low multiples, US smart money sees an opportunity and is prepared to back their views with takeover approaches.

Today’s approach by KKR for Smart Metering Systems follows yesterday’s news Ten Entertainment received a cash offer from another US private equity group, Trive Capital Partners.

KKR’s 955p offer for Smart Metering Systems values the company at an enterprise value of £1.4bn and an EV/EBITDA multiple of 20x. The 955p offer represents a 40% premium to the share price as of the close 6th December.

Smart Metering Systems shares were trading 41% higher at 958p at the time of writing on Thursday – above the 955p offer price. This suggests shareholders may reject the offer and await an improved bid. In the upcoming vote, 75% of SMS shareholders are required to vote in favour of the takeover.

Smart Metering Systems’ low-carbon energy infrastructure is a crucial part of the UK government’s net zero plans.

The company was listed in London in 2011 and has consistently grown revenue in line with increasing smart meter installations. Smart Metering Systems also provides electric vehicle charging and has a network of grid-scale battery power storage facilities.

In a release by Smart Metering Systems on Thursday, the company said continuing in a private setting would provide the capital required to capture the opportunity in the energy transition. In other words, Smart Metering Systems and KRR feel funding opportunities as a public company are not conducive to growing a clean energy company.

Tara Davies, Partner and Co-Head of European Infrastructure at KKR, commented on the acquisition:

“SMS has a strong asset base and a clear strategy across different business lines which are critical enablers of the UK’s Net Zero goals, and we share the team’s vision of putting SMS at the heart of the UK’s energy transition.”

“Achieving this growth opportunity requires significant capital of a scale, flexibility and certainty which is best facilitated in the private markets. KKR is a major investor in UK infrastructure and behind the energy transition, and we will bring our expertise and operational resources to bear in supporting SMS to invest at the level required and successfully scale its business over the long-term.”