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Barratt Developments to pay special dividends in 2019 and 2020 as first-half profit jumps

“Whilst we continue to monitor market conditions closely, current trading is in line with our expectations and we are confident of delivering a good financial and operational performance in FY19," chief executive David Thomas said.

Barratt expects to grow housing completions towards the lower end of its medium-term target range in 2019

Housebuilder Barratt Developments PLC (LON:BDEV) said it plans to return excess cash to shareholders through special dividends in 2019 and 2020 as it reported a 19.1% rise in first-half profit.

Profit before tax in the six months to December 31 rose to £408mln from £342.7mln a year ago as revenue increased 7.2% to £2.1bn.

READ: Barratt Developments starts new financial year in 'strong position' with forward sales ahead

Total housing completions edged up 4.1% to 7,622 with private completions up 6.4% to 6,078, affordable home completions up 7.7% to 1,324 and joint venture completions down 42.1% to 220.

The average selling price was little changed at £282,000 with prices of private homes rising to £317,000 from £314,000 last year and prices of affordable homes falling to £296,000 from £301,700.

Barratt said it continues to see average selling prices in 2019 falling from the level achieved in the first half due to less Central London completions.

The net private reservation rate fell to 0.64 per active outlet per week in the first half from 0.68 a year ago. The company said the second half to date was “encouraging” with net private reservations per active outlet per average week of 0.74 (2018: 0.78).

The gross margin rose 200 basis points (bps) to 22.6%. Return on capital employed (ROCE) grew 120 bps to 29.5%.

At the end of December, the firm had net cash of £387.7mln, up 133.7% on the previous year.

Interim dividend hiked, plans for special dividends 

Barratt raised its interim dividend by 11.6% to 9.6p and said it plans to pay special returns of £175mln in this year and next, “demonstrating the confidence in the business going forward”.

The outlook for the full year was left unchanged.

Total forward sales as of February 3 stood at £3bn, up 7.3% on last year.

“Operating efficiencies are delivering improved margins and our controlled and disciplined business model mean we have a high-quality land bank, strong forward sales, excellent financial position and efficient cash flow generation,” chief executive David Thomas said.

“Whilst we continue to monitor market conditions closely, current trading is in line with our expectations and we are confident of delivering a good financial and operational performance in FY19."

Barratt said demand for high-quality new homes remains supported by low borrowing costs, government schemes and greater competition in the mortgage market.

Brexit uncertainty 

However, the company acknowledged that the UK’s departure from the European Union next month poses a risk to the economy, the ability to attract and retain staff and the availability of raw materials, sub-contractors and suppliers.

“A no-deal exit would further increase these risks,” Barratt said.

It added: “Given the uncertainties arising from the way in which the UK will depart from the EU, we have worked with our suppliers on continuity of supply of non-UK manufactured components, including product specification reviews, their holding additional inventories and review of logistic routes to seek to mitigate the potential for disruption.”

The group said its well-capitalised balance sheet and robust order book gives it the “resilience and flexibility” to handle Brexit.

But due to the uncertainty facing the market, the group expects to grow housing completions towards the lower end of its medium-term target range in 2019, in line with current market forecasts.

“We remain focused on delivering our medium-term targets of volume growth of 3-5% over the medium term, land acquisition at a minimum 23% gross margin, and a minimum 25% ROCE,” it said. 

Shares rose 2.9% to 562.45p in morning trading.

Investment case remains supported by generous dividends, says analyst

Russ Mould, investment director at AJ Bell, said Barratt produced a self of half year results that "most companies would die for".

“Its pre-tax profit is growing faster than revenue, the dividend keeps storming ahead, and it continues to push up the returns it gets from investing in the business," he said.

“While the decline in reservation rates is something to watch, the increase in margins is a pleasant surprise given how the housebuilding sector has been struggling with rising costs and pressure on selling prices.

He added: “For now, the investment case remains supported by very generous dividends, with Barratt announcing another £175mln capital return for November 2020, thereby extending its capital return programme.

"The business is clearly confident about the future, otherwise it would be stashing away its cash as protection for potential harder times.”

Quick facts: Barratt Developments

Price: 809.6 GBX

Market: LSE
Market Cap: £8.24 billion

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