Panmure Gordon proved harder to impress, sticking with its "hold" recommendation and 1200p price target.
it is, however, upgrading its forecasts for the year to April 2012: the profit before tax forecast moves from £155.7m to £165.2m, giving earnings per share of 93.2p and net asset value of 781p.
Berkeley Group trades on a price-to-net-asset-value (PNAV) of 1.51, Panmure notes. "We believe the stock deserves to trade on both a premium to the sector and to NAV given the strong returns seen from the company. That said, looking at valuations across the sector at the moment, the current premium rating looks about fair," the broker concluded.
Northland Capital Partners reiterated its "buy" recommendation for the stock. "From here we see a further margin improvement as the lower cost land, acquired during the recession, starts to come into production. The overall reservations level is now 30% up on last year and, given the group’s approach to pricing and the better margin on new sites, this should be a significant driver of performance in the current financial year. This is supported by the group’s strong cash potential given its gross margin of over 28% and its £42m net cash position on 30 April 2011," the broker said.
"With stronger site visitor levels, and a largely trade-up and overseas buyer market, the impact of restricted mortgage availability is less of an issue for the company. Nonetheless, it could fly if the shortage was overcome. The rating is a BUY and we see no reason to remove this stock as our favoured investment in the sector," the broker concluded.
CONT In respect of land bank investment, Berkeley has secured a further 7 sites in the quarter. Additionally, Berkeley continues to focus on adding value to its existing land bank from optimisation. Improved consents have been achieved in the period on a number of schemes, including sites in Battersea, Kew, North Bersted and Gillingham. These successes, coupled with further investment in work in progress, indicate that market conditions, as opposed to delivery, will be the most important factor in determining the extent of further growth in the business.
Berkeley's emphasis on place making and putting the customer at the heart of every decision, coupled with a focus on London and the South East, has enabled it to outperform despite the well publicised wider market challenges we are experiencing. Our ability to produce homes and places where people want to live gives us confidence that we can achieve our return to shareholders over the long term.
At The Berkeley Group Holdings plc's ("Berkeley's") Annual General Meeting ("AGM") being held today, the Chairman, Tony Pidgley, will make the following Interim Management Statement, which covers the period from 1st May 2011 to 31st August 2011.
Berkeley embarked on a five year plan in May 2010 to achieve the following near term operating targets during a period of recovery in the wider market.
· Firstly, to achieve a compound return on equity, broadly equivalent to doubling profit before tax over 5 years;
· Secondly, to grow the future gross margin in the land bank from £2 billion to some £3 billion in the same period;
· Thirdly, to be the market leader in place making using the Building for Life criteria.
With the full year results announced in June, the Board indicated its confidence that the business would maintain the reported rate of earnings growth and increase the value of the land bank in the current year. Additionally, the Board provided shareholders with long term visibility on both the timing and amount of potential returns, announcing its intention to return £13 per share (some £1.7 billion in total) over the next 10 years in a series of dividends payable on milestone dates in September 2015, 2018 and 2021.
Since the original plan was announced in May 2010, trading has been ahead of management expectations and Berkeley has achieved a significant number of planning consents and invested in work in progress in line with its strategy. Together with the performance in the period since 1st May 2011, the Board believes that it is now positioned to achieve the profit target set in the five year plan at least 2 years earlier than originally anticipated, to the extent that market conditions prevail. Market conditions in the four months ended 31st August 2011 have enabled further growth in forward sales which are currently in excess of £850 million.
Commenting on the results for the year, Managing Director, Rob Perrins said:
"I am pleased to report that Berkeley has performed strongly during the year, exceeding the targets set for both return on equity and land bank growth. The 20.2% growth in earnings per share reflects the depth of demand for well located property in London and the South East where supply is constrained and Berkeley has the land and expertise to deliver quality homes and places. In addition, Berkeley has acquired some 3,600 plots across 24 sites in excellent locations during the year, and has increased the number of active sites in line with our strategy to invest at this point in the cycle.
The increase in forward sales of 25.5%, land bank growth of 13.1% and our planning successes contribute to an improvement in operational visibility. This provides us with confidence that Berkeley can maintain the rate of earnings growth in the current year and increase the value of the land bank over the next two years, through a combination of optimisation and land acquisition, before commencing the return in cash to shareholders envisaged in the long term plan."
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