Will Berkeley Group Holdings PLC beat Barratt Developments Plc, Bovis Homes Group plc and Bellway plc after trading update?

Does Berkeley Group Holdings PLC (LON:BKG) (BKG.L) have more investment potential than Barratt Developments Plc (LON:BDEV) (BDEV.L), Bovis Homes Group plc (LON:BVS) (BVS.L) and Bellway plc (LON:BWY) (BWY.L)?

Berkeley Group
Berkeley Group

The Berkeley Group Holdings PLC (LON:BKG) (BKG.L) share price has fallen over 5% after it released a trading statement.

The update covers the period from 1 November 2017 to 28 February 2018 and shows that it has traded in line with its business plan requirements. Market conditions have been generally unchanged since the first half of the year, with sales prices achieved being above business plan levels.

Berkeley reports that high transaction costs, the 4.5x income multiple limit of mortgage borrowing and economic uncertainty have constrained the housing market to some degree. Additionally, tax changes including mortgage interest deductibility for buy-to-let investors have meant that the company has been unable to increase production to levels beyond those in its business plan.

The company has reaffirmed its guidance to deliver at least £3.3 billion of pre-tax profits for the five year period to 30 April 2021. This means that it remains on track with its capital return programme.

In the last year the Berkeley share price has risen 26%. That’s a better performance than other housebuilders such as Barratt Developments Plc (LON:BDEV) (BDEV.L), Bovis Homes Group plc (LON:BVS) (BVS.L) and Bellway plc (LON:BWY) (BWY.L). Barratt is down 1%, Bovis has risen 12% and Bellway has moved 25% higher during the same time period.

In my view, Berkeley’s trading update is relatively positive. The company remains on track to deliver on its forecasts over the medium term. However, it is experiencing a frustrating set of operating conditions, with planning challenges and changing rules on mortgage borrowing, as well as buy-to-let investing, causing difficulties in the wider market.

I remain bullish on the company’s long term prospects. I wouldn’t be surprised if the operating environment became more challenging as Brexit approaches, but in the coming years the stock could still deliver a strong performance relative to sector and index peers.

About Robert Stephens 3891 Articles
Robert Stephens is a CFA Charterholder and an Equity Analyst by trade. He is a passionate private investor who has been buying and selling shares for many years, owning a wide range of UK shares in the process. He has written for Citywire and The Motley Fool US and now runs his own business. To contact Robert, please email [email protected] or use one of the other contact methods available on the 'Contact Us' page