viewBarratt Developments

Barratt Developments delivers record profits as housing completions hit decade high

Barratt Developments raised its final dividend by 4.7% to 17.9p and declared a special dividend of 17.3p

Low interest rates and Help to Buy supported housing demand

Barratt Developments PLC (LON:BDEV) delivered record annual pre-tax profit as the housebuilder continued to see strong customer demand despite a slowdown in the housing market.

Pre-tax profit rose 9.2% to £835.5mln in the year to June 30 as revenue increased 4.8% to £4.9bn as low-interest rates and the government’s Help-to-Buy scheme supported housing demand.

Housing competitions edged up 1.1% to 17,579 units – the highest level in a decade – and average selling prices gained 5% to £288,900.

The gross margin improved by 70 basis points to 20.7% as strong trading at regional sites offset a weaker performance in the high-end central London market.

READ: Barratt Developments rises as it predicts record profits this year

Barratt warned that average selling prices will fall in the current fiscal year as a higher proportion of completions will be from outside London.

Strong start to the new year 

However, chief executive David Thomas said the group has started the new year in a “good position with a strong balance sheet, healthy forward sales and robust consumer demand supported by a positive mortgage environment."

The company raised its final dividend by 4.7% to 17.9p and declared a special dividend of 17.3p, in line with last year’s payout, as net cash increased 9.3% to £791.3mln.

Forward sales as of September 2 stood at £3.05bn, up 11.1% on the previous year. 

Barratt also announced new medium-term targets, including 3.5% growth per year in housing completions, new land acquisitions of at least 23% gross margin and a minimum 25% return on capital employed.  

Shares were little changed at 526p in morning trading.

Concerns about Brexit, interest rates and Help to Buy 

Laith Khalaf, senior analyst at Hargreaves Lansdown, said despite a strong performance the share price has lost almost a fifth of its value since the start of the year due to worries about Brexit, interest rates and Help to Buy.

"Unemployment is currently at a record low, but clearly there are concerns that withdrawal from the EU may not be an entirely smooth ride, and that puts a dampener on stocks like Barratt, which are plugged into the domestic economy," the analyst said. 

"Meanwhile the Bank of England is raising interest rates, albeit slowly, but that’s a reversal of direction from the last ten years of monetary policy.

"Finally, the end of the Help to Buy scheme is hoving into view, and unless the government extends this in some form beyond 2021, that spells the removal of a key lynchpin in the new build property market."

Quick facts: Barratt Developments

Price: 795.2 GBX

Market: LSE
Market Cap: £8.1 billion

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