Berkeley dismisses shift from London as FY profits rise on strong demand

Housebuilder Berkeley reported a rise in annual profits driven by sales of new homes in London and the South East and government support initiatives during the Covid pandemic.

Pre-tax profit for the year to April 30 rose 2.9% to £518.1m as revenue increased 14.7% to £2.2bn. The company maintained long-term guidance of a 15% pre-tax return on equity until April 2025, or £500m a year, and said it expected profits in the next two years to be similar to 2021.

Berkeley said the current boom in demand from buyers looking for larger homes outside London as more people worked from home during the pandemic lockdown “does not represent a permanent structural shift” which would “reverse urbanisation or detract from the attraction of a global city”.

“It is a deeply under supplied market and Berkeley's unique approach to placemaking with its focus on community, nature, connectivity and overall quality of place will resonate with customers even more as the country emerges from the pandemic,” the company said.

Government incentives such as the stamp duty holiday, mortgage guarantee scheme and the increasing work-from-home trend have all combined to increase interest in properties with office and outdoor space.

Berkeley said transaction levels in the capital had been impacted by lockdown restrictions on travel and deferral of certain sales launches, but enquiry levels in London are now ahead of pre-pandemic levels, which signals the return of confidence to the housing market in the capital.

The company, which specialises in redeveloping brownfield sites and has pledged to reinstate lost biodiversity, recorded an average selling price of £770,000, up almost £100,000 and around three times the national average house price of £261,743 cited by the latest Halifax survey.

“Add in a phenomenal average selling price of £770,000, almost three times the national average house price of £261,743 cited by the latest Halifax survey, and some may wonder why Berkeley is not expecting its profits to advance more rapidly. But the firm takes great pains in its statement to explain the issue of sales mix, the complexity of the brownfield sites in which it specialises and the efforts it is making in its drive toward carbon neutrality and site biodiversity, all of which are likely to come at some cost.

AJ Bell investment director Russ Mould noted Berkeley's operating margin of 22.8%, adding that such large returns on sales "usually translate into healthy free cash flow and that in turn usually translates into cash returns for shareholders".

“This still provides the core planks of the investment case for Berkeley. Since 2011, the company has returned £2.2bn in cash to its shareholders – good going for a firm whose market cap is £5.6bn now and whose valuation a decade ago was just £1.5bn. Anyone who owned shares in Berkeley then will now own them for free, with cash on top, and still possess their stake in the company’s operations and assets," he said.