A trading update on 15 March had little effect on the Berkeley Group Holdings (LSE: BKG) share price when the market opened on the day. That’s probably because there were really no surprises.
The update reinforced the firm’s earlier guidance, “to deliver at least £1.5 billion of pre-tax profit across the three years ending 30 April 2026, including pre-tax profit for the current financial year in line with consensus of £550 million“.
Future sales
Those profit forecasts are pretty much bang in line with current broker forecasts. In fact, they’re very close for this year and on that three-year outlook.
If profits like these are the worst that happen in a tough spell for a business, I reckon it could be a good business to be in.
Projected earnings are though still some way behind where they were before Covid. So right now, I’d say liquidity has to be key while we await a housing recovery.
Plenty of cash
Berkeley had £422m net cash on the balance sheet at the halfway stage, and we should see more than that by the end of the year.
The company has also extended its £800m bank facilities to February 2029. With that, and cash set to rise, I don’t think we’re going to be short of a few quid here for the foreseeable future.
How are sales going? Berkeley, which focuses on brownfield regeneration, told us: “All sales for the current year ending 30 April 2024 are secured and we also have more than 70% of sales secured for the next financial year, which is a strong position“.
Time to buy?
As a long-term investment, I reckon this could be a great sector. I won’t tire of pointing out that the UK still has a big housing shortage. And a combination of high demand with short supply has to be a sure recipe for profits.
The problem right now though is that the whole sector seems to be treading water. I’m seeing more thoughts that interest rates won’t fall until the third quarter. And the first cuts are likely to be very small.
I can see pressure on mortgages for some time to come yet. And that could hit short-term dividend yields. As it is, the forecast Berkeley Group yield is only 2%.
The sector
Persimmon posted FY results a few days before this latest news from Berkeley. And again we heard the typical sector talk that 2024 should be another tough year.
But Persimmon reckons it should “at least maintain the 2023 dividend per share in 2024, with a view to growing this over time as market conditions permit“.
The CEO added: “Although the near-term outlook remains uncertain, the significant pent-up demand for homes remains unchanged.”
Bottom line
I’d say that sums up my thoughts on the whole sector. I’m buying and holding for long-term cash generation and dividends. But I could see share price and dividend pressure in the next year or two.
