Berkeley shares brush aside latest cash bonanza

An increase to profits forecasts for the next three years and strong hints of even greater cash returns to shareholders are failing to move shares in high-end housebuilder Berkeley.

Investors are focusing instead on rising interest rates, falling consumer confidence and fears of a recession, especially as acquisitions, dividends and buybacks are whittling down the FTSE 100 firm’s net cash pile.

Berkeley has already returned £2.8 billion in cash to its investors over the past decade, no mean feat for a firm with a current stock market valuation of £4.1 billion. The housebuilder is still preparing to return £282 million a year for the next three years, with more to come after that, so patient portfolio builders may elect to hang on, especially if income-generation is their primary goal.

AJ Bell Investment Director Russ Mould said: “Berkeley’s management seems optimistic. The company bought in the 50% of the St William joint venture which it did not own for £413 million and raised profits guidance as a result for the financial years to April 2023, 2024 and 2025.

“Before today’s statement, analysts had pencilled in pre-tax profits of £579 million for April 2023 and £610 million for April 2025. CEO Rob Perrin is now steering forecasts toward £600 million and then £625 million for the two years thereafter.

“If attained, those profit figures should underpin Berkeley’s plans for dividends and share buybacks, especially as the company has a net cash balance sheet. However, the St William deal and fiscal 2022’s cash returns have reduced the cash position to £269 million, so those investors who are of a nervous disposition, and fear a downturn in the economy and the UK housing market, may be less convinced that the cash return plans can be set in stone.

“For the moment, Berkeley seems on track to drive completions up by 50% from pre-pandemic levels to around 5,500 a year by 2025. An average selling price (ASP) for fiscal 2022 of £603,000 represented a big drop from £770,000 in the prior period, although management attributed that to business mix, rather than a softening of demand, and it was still the highest ASP for any of the FTSE 100 and FTSE 250 housebuilders.”