- Housebuilder says completions will fall again in its financial year to June 2025
- Builder takes additional provisions for remediation work
- Cautious approach to land buying reflects wider market uncertainty
- Builder awaits regulatory clearance for Redrow takeover
“The new Labour government is determined to increase the supply of new homes, but Barratt Developments’ latest trading update suggests it will take time for these plans to take effect, as the FTSE 100 housebuilder is flagging a second consecutive decline in annual completions in the coming year,” says AJ Bell investment director Russ Mould. “A 19% decrease in completions in the year to 2024 will be followed by a further decrease of 5% or so in the 12 months to June 2025, according to chief executive David Thomas.
“The forecast of 13,000 to 13,500 completions for the new fiscal year comes despite a modest increase in the net private reservation rate per active sales outlet to 0.58 per week, from 0.55 in the year to June 2023. However, that is still not a high figure, relative to recent history. The impact of higher interest rates, and thus mortgage costs for borrowers, must be a factor here and Barratt’s forward order book is down as a result, a trend which probably informs management’s cautious outlook.
Source: Company accounts
“A softening in average selling prices is a further unhelpful trend for the builder – even if lower prices may help buyers and tempt them in – and the expected drop in completions would take this figure to its lowest level since the year to June 2012 (with the exception of the pandemic-blighted year of 2020).
Source: Company accounts
“Falling volumes and prices will pressure profits when Barratt reveals the outcome for 2024 on 4 September and stated earnings for the 2024 fiscal year will also take a further hit from additional charges relating to remediation work at legacy properties and developments. Barratt had already booked a further £61 million provision in the first half, to add to the £715 million in additional costs already swallowed between 2020 and 2023.
Source: Company accounts
“Analysts and shareholders will need to wait until September to see the full profit and loss account but, for now, the consensus forecast is that the headline pre-tax profit number will drop to £326 million from £705 million in the year to June 2024. A modest recovery is expected to £434 million in fiscal 2025, although that forecast may slide lower as a result of the downward steer given to completions for the coming year.
Source: Company accounts, Marketscreener, consensus analysts’ forecasts
“It may be too much to ask profits to return rapidly to prior peaks, given how they were helped by both very low interest and mortgage rates and also Help to Buy, but at least Barratt is well prepared for a more difficult environment, as its balance sheet still carries a net cash pile of £865 million. That will also help to fund dividends, albeit at a reduced level, with analysts looking for a total payment of 14.9p for fiscal 2024, down from 33.7p in 2023.
Source: Company accounts, Marketscreener, consensus analysts’ forecasts
“That is still enough for a 3.1% dividend yield and income seekers may still be intrigued by the builders as a group, given their aggregate forecast yield of 3.9%. Barratt’s all-share offer for Redrow and two approaches to Crest Nicholson – one from Bellway and one from Avant – suggest that industry players may feel there is some value here, too, and the companies are not looking unduly expensive on an asset basis, either.
“Crest Nicholson and Bellway both trade at discounts to tangible net asset value (TNAV) per share and they come out looking very cheap relative to the valuation implied for Redrow by Barratt’s all-share offer of 1.17 times TNAV.”
Source: Company accounts, Marketscreener, consensus analysts’ forecasts, LSEG Datastream data
