Berkeley builds up land bank even as it returns more cash to shareholders

The record of the management team at Berkeley Group, and chairman Tony Pidgley in particular, at calling the housing cycle is second to none so investors will be intrigued to see the group build up its land bank for the second year in a row, even as it continues to return plenty of cash to shareholders via dividends and buybacks.

Russ Mould, AJ Bell Investment Director, said: “Even if the cash return plan has been scaled back, the core aim of returning £280 million a year to investors still stands and the acquisition of six new sites across London and the South East suggests that Berkeley thinks there is value to be had and created through careful project management.

“Mr Pidgley and team clearly believe more can be done to help the housebuilding industry, as they continue to rail against tax changes and planning permission issues which they believe are stifling either demand or supply. Berkeley’s average selling price of £677,500 in the year just ended means that not all of its new-build properties qualify for the Help to Buy scheme, where the price limit is £600,000, while the limits for the now-closed Help to Buy ISAs were £450,000 in London and £250,000 outside the nation’s capital.

“However, the firm’s net cash pile actually rose in the year to April to £1.1 billion as it continued to manage it resources carefully and the company’s still-impressive 24.7% operating margin shows it is an expert in managing the long lead times which can be associated with new-build housing developments, even if profits dipped sharply in the year just ended.

“But here lies the difficulty for would-be investors. Berkeley has just shown two consecutive drops in operating profit and operating margin, even if the levels in absolute terms remain healthy.”