Where next for Berkeley Group Holdings PLC after today’s interim results?

Does Berkeley Group Holdings PLC (LON:BKG) (BKG.L) offer investment potential?

Berkeley Group Holdings PLC
Berkeley Group Holdings PLC

Prime housebuilder Berkeley Group Holdings PLC (LON:BKG) (BKG.L) has released interim results today for the six months to 31 October 2018.

The company has delivered 2,027 homes during the period, which is more than 10% of London’s new private and affordable homes. Pre-tax profit has fallen from £539.9 million to £401.2 million. Pre-tax profit guidance for the current financial year has been increased by over 5%, with the full year split between first and second half anticipated to be similar to the last year.

The company has maintained its guidance for the next two financial years. It expects pre-tax return on equity to normalise thereafter towards 15% based on current market conditions. The business has a net cash position of £859.7 million, with its net asset value per share rising by 7% to £20.74. This puts the stock on a price to book ratio of around 1.65.

Berkeley added 11 new sites during the period. Its new investment phase is now beginning as it invests for the long term. It is bringing forward the next wave of regeneration sites, coupled with new opportunities. The annual shareholder return is to be extended at the current amount of £280 million per year until 2025.

In my opinion, the near-term prospects for the business are relatively uncertain. The macroeconomic outlook for the UK economy is relatively downbeat at the moment, and this may deter foreign investors from buying property. As the Brexit process moves ahead, further disruption could create continued challenges for the business in my view.

In the long run, I think that Berkeley could generate improving financial performance. I’m optimistic about the wider housebuilding sector and feel that there may be value investing opportunities on offer. In the short run, though, the sector may experience continued high volatility due to challenging operating conditions.

About Robert Stephens 5151 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