Wednesday 4 September 2019 8:48 am

Housebuilder Barratt Developments defies Brexit jitters as profits climb

Barratt Developments shrugged off concerns of a housing market slowdown today after reporting a rise in pre-tax profits for the year to June 2019.

The figures

Britain’s largest housebuilder, which has been reducing its exposure to Central London’s subdued property market, posted profits before tax of £910m in the 12 months to 30 June, rising 8.9 per cent on the same period in the previous year.

Operating margins rose from 17.7 per cent in 2018 to 18.9 per cent this year.

Revenue slipped 2.3 per cent from £4.87bn to £4.76bn over the same period.

The total dividend per share rose 5.9 per cent from 43.8p to 46.4p.

A total of 17,856 homes were completed, with wholly owned completions up 2.6 per cent to 17,111 homes from a year ago. 

Read more: Brexit turmoil takes toll on FTSE housebuilding stocks

Why it’s interesting

Housebuilding stocks have been particularly exposed to the Brexit uncertainty that has loomed over the City in recent months, with developments in Westminster fuelling investor jitters. But Barratt’s share price is still up more than 15 per cent from last year, after gaining a boost in July when it raised its pre-tax profit guidance.

Barratt is also one of a number of developers that has benefitted from the government’s controversial taxpayer-funded Help to Buy Scheme, which has supported the market for new-build purchases.

Boss David Thomas, who pocketed £3.3m earlier this summer after cashing in more than a third of his shares, has sought to cut the firm’s exposure to Central London, where activity has waned in the wake of political uncertainty and stamp duty.

The FTSE 100 builder’s share price dipped a little over two per cent this morning, but interative investor’s head of markets Richard Hunter said: “While the immediate reaction to the results owes as much to cautionary concern over the future rather than the actual numbers, the market consensus of the shares as a buy is testament to the company’s positioning ahead of the rocky road ahead.”

Analysts at Shore Capital, which holds a ‘Sell’ rating on the stock, noted that the key question remains whether Barratt will be able to make progress against the stiffening headwinds impacting the housing market.

In a research note this morning they said: “The board is adamant that its self-help measures can push margins ahead from the current 18.4 per cent to its target of 19.5 per cent. However, the loss of positive pricing is driving a mean reversion in margins across the sector (as inflation-boosted older sites have been making higher margins than more recently acquired sites will make) and prices are not rising by enough to redeem higher construction costs. We still believe that, like the rest of the sector, margins here are peaking rather than being ready to move further ahead as the rating suggests.”

Read more: Our property of the week

What the boss said

David Thomas, chief executive of Barratt, said: “It has been another outstanding year delivering a strong operational and financial performance. The group’s long term investment in quality and operational excellence continues to drive margin improvements, alongside our highest number of completions for 11 years. As the only major housebuilder to be awarded a 5 Star rating for customer satisfaction for ten years in a row, we continue to lead the industry in quality and customer service.

He added: “Whilst there is increased economic and political uncertainty, we begin the new financial year with a strong forward order book, balance sheet and cash position which we believe provides us with the resilience and flexibility to react to potential changes in the operating environment in FY20 and beyond. We maintain our focus on the delivery of operational improvements across our business, and our commitment to deliver the highest quality homes across the country.”