The biggest FTSE 100 gainer in yesterday’s trading was property developer Berkeley Group Holdings (LSE: BKG), whose share price rose by almost 5%. I have to admit, I have not talked about the company in a while, because others in the segment looked so much more promising. But yesterday’s increase had me sit up and take notice.
Berkeley Group Holdings posts good results
So I dug deeper. The increase followed a good set of results. For the six months ending 31 October 2021, the company reported a 36% increase in revenue compared to the same six months in 2020. Its earnings showed strong growth too. Pre-tax profits were up by 26%, while earnings per share (EPS) rose by almost 35%. Even though the company’s revenues have not grown consistently, on a sequential basis, its net profits have risen every six months for the last year and a half, which is pretty impressive to me.
And its future looks good too. Berkeley Group has increased its earnings guidance for the next three years! It also says that by then its volumes will have increased by 50% from pre-pandemic levels. I think this could continue to add to its share price, which is still some 13% below its pre-pandemic levels. In the past year as well, the stock has made limited gains of only 9% or so. Of course the gains can vary from day to day, based on where the markets were at a year ago. And in this case, there has been a particularly high degree of fluctuation in stock price. Hopefully, though, it could stabilise a bit more now.
Higher expected dividend yield for the FTSE 100 stock
The company could also pay better dividends now. So far its dividend yield has been negligible at 0.2%. This in turn could increase the attractiveness of the stock, which has so far been relatively limited.
What is holding it back?
I reckon that one reason why Berkeley Group’s share price was not going anywhere recently, despite its good results, was its price-to-earnings (P/E) ratio of around 12 times. Now, this is not high. In fact, it is much lower than the current FTSE 100 P/E of 17.5 times. But, it is comparable to other big property developers.
For instance, Barratt Developments and Persimmon each have a P/E of 11.5 times. At the same time, their share price movements have been far more predicable. They rose during the pandemic in 2020 on account of stimulus measures for the housing market. And they have been less certain in 2021 as supportive policies are rolled back and the recovery still remains relatively muted. And both stocks also have much better dividend yields, notably Persimmon, which is at 8.2%. In other words, they seem to have more going for them than Berkeley Group.
However, I think the clarity of outlook for the company is noteworthy for me. And I reckon it was so for other investors too, which is why its share price rose so much yesterday.
What I’d do
Based on this and a potential improvement in its dividend yield in the coming months, I think this stock could outperform its peers, if not other FTSE 100 shares in 2022. I am keeping a close watch on further developments. It could just be among the stocks I buy early next year.
