viewBarratt Developments

Barratt, Berkeley and Redrow continue to dole out dividends despite uncertain outlook

This week's results from housebuilders will do "little to settle the argument between the bulls and bears over the sector", according to AJ Bell's Russ Mould

Investors are concerned about future interest rate hikes and the end of Help to Buy

The UK housing market may have slowed but the latest results from housebuilders have revealed they have more than enough cash to continue dishing out dividends.

Barratt Developments PLC (LON:BDEV) on Wednesday said it would raise its final dividend by 4.7% to 17.9p and pay a special dividend of 17.3p after net cash grew by 9.3% to £791.1mln in the year ended June 30.

READ: Barratt Developments delivers record profits as housing completions hit decade high

In a trading update the same day, Berkeley Group Holdings PLC (LON:BKG) said it expects its net cash at the half-year will be above the financial year-end position of £687.3mln. It is paying an interim dividend of 33.3p per share next week after a £95.2mln share buyback programme and said the next half-year return of £139.2mln will be paid as a dividend to be announced in February 2019.

READ: Berkeley Group rolling in cash, whinges about housing headwinds

On Tuesday, Redrow PLC (LON:RDW) announced it would hike its full-year dividend by 65% to 28p after ending the period with net cash of £63mln, compared to last year’s net debt of £73mln.

READ: Redrow lifts full year dividend by 65% after delivering record results

The three housebuilders said low interest rates and the government’s Help to Buy scheme have continued to support housing demand despite concerns about the possible impact of Brexit on the market.

Uncertainty over future rate hikes and Help to Buy 

But the future of interest rates and Help to Buy is unclear.

The Bank of England has said it would raise interest rates gradually but has not provided specific forward guidance on monetary policy. Adding to the uncertainty, Governor Mark Carney is stepping down from the central bank in June 2019 and a new leader is yet to be announced.

Meanwhile, the government is reportedly considering ditching Help to Buy after it expires in 2021 due to concerns the scheme is pushing up property prices and helping wealthy people upgrade their homes.

The government may reveal what it plans to do with Help to Buy at the Budget in November but until then, it remains up in the air.

Brexit worries drag on sentiment 

Without low borrowing costs and Help to Buy to boost demand, housebuilders would be more exposed to any fallout from the UK’s exit from the European Union next March.

Worries about the outlook for the UK economy have already resulted in an easing back of house price growth. Nationwide last week said house prices rose at an annual rate of 2.0% in August, the slowest increase in five years, compared to 2.5% in July.

Berkeley has acknowledged the risks facing housebuilders, saying it thinks the market lacks urgency and London remains constrained by high transaction costs, restrictive income multiple limits on mortgage borrowing and Brexit uncertainty.

“These headwinds affect all segments of the market from home movers to downsizers and investors alike,” the company’s AGM statement said.

“A functioning housing market, where good new development can deliver much-needed additionality across all tenures, requires conditions for growth and low barriers to entry which are currently absent from the housing market in London and the South East,” it added.

Barratt was more upbeat, saying it remains “confident in the strong fundamentals of the housing sector” despite political uncertainty. It added that it is well positioned with a strong cash position and healthy forward sales.

Redrow also believes it will be able to react quickly to any changes, thanks to a robust balance sheet and forward order book.

The group, however, did admit that clarity over Brexit and the future of Help to Buy would improve market sentiment.

Bulls versus bears 

Russ Mould, investment director at AJ Bell, said the latest results from housebuilders will do ”little to settle the argument between the bulls and bears over the sector”.

“Bulls could point to the solid earnings still being chalked up by Berkeley and Barratt Developments and their relatively depressed valuations,” he said.

“Bears can highlight that Berkeley feels the need to complain about a ‘lack of urgency’ in its core London market and the fact Barratt’s order book is being propped up by affordable housing and joint venture developments, rather than the core private development sales which account for the bulk of its profit.”

Quick facts: Barratt Developments

Price: 534 GBX

Market: LSE
Market Cap: £5.44 billion

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