As an owner of housebuilder shares I find the steady stream of news coming from the homes market very exciting. Halifax claimed on Tuesday that property prices in the UK leapt at their fastest rate since 2006 in the three months to November. It’s perhaps no surprise then that builders like The Berkeley Group (LSE: BKG) have been busy hiking their earnings predictions recently.
In fact, that Halifax report suggests that Berkeley — which specialises in building homes in London and the South East — could be a particularly attractive housebuilder to buy. It showed that price growth of apartments is outpacing that of houses right now. Between September and November the average flat price jumped 10.8% year-on-year, while the average detached property gained 6.6% in value.
This bodes well for developers like Berkeley that build apartment blocks in the congested capital city. In fact, the FTSE 100 housebuilder’s latest financials illustrate how strong the London market is today.
Profit forecasts hiked again
Berkeley said on Wednesday that revenues leapt 36.3% in the six months to October. They clocked in at £1.22bn versus £896m in the same 2020 period. This in turn propelled pre-tax profit to £291m, up 26% year-on-year from £231m reported previously.
Berkeley said it’s benefiting from “a resilient sales market” and from its decision to concentrate on London and the South East, regions it describes as “the country’s most under-supplied housing markets”. The FTSE 100 firm also lauded the earnings visibility that its portfolio of 64 ‘live’ building projects provides.
As a consequence, Berkeley lifted its profits predictions once again. It reckons earnings for the financial year to April 2021 will now beat its earlier forecast by 5%. Berkeley added that it expects pre-tax profits to grow 5% each year over the following three financial years. This will be delivered by the company increasing build rates by 50% versus pre-pandemic levels, it said.
BIG FTSE 100 dividend yields!
Berkeley’s share price has risen 4.5% in midweek trade following the release. Broker commentary around the results has matched the upbeat reception from investors too.
Steve Clayton, manager of the HL Select UK Growth Shares fund, pointed out that Berkeley is “sounding confident” and noted that the business is stepping up its land-buying efforts accordingly. He noted that “historic investment into land acquisition, at times when others have been wary or unable to commit, has left the group with a clear growth runway ahead… built around the predictable delivery of future developments at attractive margins”.
I share the Hargreaves Lansdown man’s positive take on today’s news. Though I’m also wary that businesses like Berkeley face considerable margin headwinds as building product and labour shortages push up costs.
All things considered, I think Berkeley is a highly attractive buy. And especially as additional earnings upgrades could be around the corner. Today the builder trades on an undemanding forward P/E ratio just below 13 times. It also sports a mighty 5.5% dividend yield at today’s price around £48.40. I’d buy this FTSE 100 stock today and look to hold it for years.
