House Builders in Focus: Barratt Development and Berkeley Group

Fiona Cincotta
By :  ,  Market Analyst
The housing sector has roared back to life following the lockdown period. Nationwide house price index, released this week, revealed that house prices had jumped 2% mom, and 3.7% yoy – not bad considering we are in the deepest recession for 300 years.

Demand, and therefore prices, are being boosted by:

• Pent up demand post covid
• The Chancellor’s stamp duty holiday, running until March next year
• Low mortgage rates as interest rates sit at historically low levels
• People reassessing their housing needs post lockdown

There are of course dark clouds on the horizon. As the government withdraws from the job retention scheme unemployment is expected to jump to 7.5% by the end of the year, which could see demand for houses ease. That said, the government is keen to keep building houses amid a housing shortage which has been going on for as long as I can remember and us 

Brits love to own out own home two factors which could help underpin demand
Even so, house builder stocks are cyclical so they are highly exposed to the cycles of the economy. An extended economic downturn could drag on house builder stocks.

Barratt Developments vs Berkeley Group
This week Barratt Developments reported and despite missing forecasts on revenue and profits the stock still surged over 8%. The rally came off the back off comments that sales had picked up faster than expected in recent weeks. Barratt Developments is selling homes at a faster rate than last year, with 15660 homes compared to 13064 at the point in 2019.
However, today Barratt Developments have found itself caught up in troubles with the CMA over the possible mis-selling of homes with leasehold contracts. The stock dropped over 7% on the back of this news today.

Berkeley Group is not, so far, caught up in the group of house builders under further investigation. Furthermore, Berkeley Group said that trading had been resilient, and it reiterated full year £500 million in pre-tax profits. The fact that management are comfortable giving guidance is good news in itself in these strange times. Production had been better than expected post lockdown and the group is running at 90% of normal efficiency levels.
With over £1 billion net cash, thanks in part to high margins and strict debt management, Berkeley will return 107p in a special dividend on 11the September. A further £140.1 million will be returned by the end of March. This again reflects managements confidence in the outlook.

Berkeley Group closed at key level
The stock trades -7% YTD, outperforming the broader market, despite a 3% fall on the back on the CMA news affecting other housebuilders. 
Today’s selloff has seen the share price drop to 4475p a key support of 200 & 50 day moving average and the ascending trendline support. Should this level hold, Berkeley Group could advance to resistance 4770p (18th August) prior to 4970 (high 4th March)
Meanwhile, break through 4475p could see the share price slide to 100 sma at 4320p


Related tags: Equities

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