Barratt Developments

Wednesday, 11th July 2018 09:39 - by Rajan Dhall

This morning it seems we have a stellar update from one of the UK's biggest homemakers. It seems obvious as prices stagnate to increase output to make up the shortfall and this year has seen a record production number (decade) for the group. A massive 17,579 total completions including joint ventures have not been enough to stop the share price falling recently and as you can see on the weekly chart below price action has been subdued inline with the rest of the sector. 

Key takeaways from the report:

·     17,579 total completions (including JVs) (2017: 17,395) - the highest level of completions in a decade

·     Profit before tax expected to be around £835m (2017: £765.1m), driven by a strong end to the financial year and early progress on margin initiatives

·     Sales rate of 0.72 (2017: 0.72) net private reservations per active outlet per week

·     Total plots forward sold (including JVs) as at 30 June 2018 up 4.0% at 10,155 plots (30 June 2017: 9,762 plots) at a value of £2,175.7m (30 June 2017: £2,144.4m)

·     Year-end net cash balance of c. £790m (30 June 2017: £723.7m), ahead of guidance, reflecting our strong end to the financial year

·  The Board is confident in the future progress of the Group and we enter our new financial year with good momentum supported by a strong forward order book.

Unlike other homebuilders, Bdev's focus is on margin reduction and rightly so, this where some of the other competitors have been hit heavily. Higher producer prices are not only affecting this industry it happening all over the country and the economy of scale that Barratt have could mean it fend off this problem for a slightly longer period of time. On Thursday we see we will see the latest set of data from RICS in regards to house prices if prices can hold this will be favourable for this Co.

Looking at the price action now we have seen a small reversal and this is really due to pressure on the sector and not the fundamentals of this company. I would think we could see a small rally after this report but longer term there seems to be too much bearishness over the sector.

The Writer's views are their own, not a representation of London South East's. No advice is inferred or given. If you require financial advice, please seek an Independent Financial Adviser.