(BKG) Berkeley Group

http://www.ft.com/cms/s/0/be3790c8-2288-11e1-acdc-00144feabdc0.html#ixzz1g4r9gz00

December 9, 2011 6:03 pm
Bellway reveals further evidence of recovery

By Michael Stothard

Bellway has reported rises in its average selling price and reservation rates over the autumn period in a further sign that UK property markets are stabilising.

The UK housebuilder said that the number of people reserving houses with Bellway over the four months to 30 November had risen 14 per cent from the same period a year ago in spite of worries over the eurozone debt crisis and a flatlining UK economy.


Alistair Leitch, finance director, said he was slightly surprised by the strength of the results but suggested that potential buyers were finally coming to the view that house prices were unlikely to fall any further and so “now was as good a time to buy as any”.

The statement follows news that rival housebuilder Persimmon had reported a 19 per cent rise in house sales since the start of September. Elsewhere in the sector, Barratt reported average selling price up 7 per cent over the four months to November while Berkeley reported a 21 per cent increase in homes sold in the first half.

Analysts said the housebuilding sector was now in recovery mode after years on the back foot: “For the first time since Northern Rock housebuilders are in control of their own destinies,” said Mike Bessell, analyst at Evolution Securities

The Newcastle-based group also reported that average selling prices rose 7 per cent in the period. This was not due to house price inflation, however, but because of a change in product mix as the company attempts to sell more expensive properties in London and the south-east.

The company’s order book at the period end was £458m, ahead of £440m a year ago. It spent £71m on land in the period and acquired about 1,400 plots. This left Bellway with a net debt of £17m.

The group also announced the renewal of £150m of bank facilities “with no significant changes to banking covenants”. Analysts said this highlighted how credit facilities remain available to healthy corporate borrowers.

Bellway said it welcomed government efforts to stimulate the housing market, including the release of government-owned land to housebuilders and help for first-time buyers. But it said their results would hinge on consumer confidence rather than government intervention. “The outcome for the full year will be dependent primarily upon consumer confidence, especially during the spring selling season.”

Berkeley boss welcomes Government measures to support mortgages
http://www.telegraph.co.uk/finance/newsbysector/constructionandproperty/8931846/Berkeley-boss-welcomes-Government-measures-to-support-mortgages.html

Tony Pidgley, the veteran boss of housing developer Berkeley Group, has called new Government proposals to support mortgages and overhaul the planning system "the most significant changes to the housing industry for a generation".

"Locations in the best areas of London continue to be in demand from both international and UK domestic buyers who are attracted by the stability of the London market, the relative value in sterling against other currencies and the desire to hold property in one of the world's great cities," Mr Pidgley said.

By Graham Ruddick, Property and industrycrrespondent6:47PM GMT 02 Dec 2011

Mr Pidgley said the Coalition's mortgage indemnity scheme, which will protect banks against losses on a mortgage, should make finance more available for potential buyers and boost housebuilding.
The Berkeley chairman also said proposals to simplify planning rules "addresses many of the obstacles within the current planning system" while also ensuring "powerful local engagement, decision making and benefits for local communities".
He made the comments as Berkeley, which focuses on upmarket regeneration schemes in London, increased pre-tax profits 64pc to £101m despite global sovereign debt concerns.
Profits were boosted by the sale of its 51pc stake in a student scheme for Imperial College for £31m.
"Locations in the best areas of London continue to be in demand from both international and UK domestic buyers who are attracted by the stability of the London market, the relative value in sterling against other currencies and the desire to hold property in one of the world's great cities," Mr Pidgley said.

Berkeley is pushing ahead with further housing developments next year, including a rare new residential development in Belgravia. The company sold 1,506 homes in the period, a 21pc increase on the previous year. Shares in Berkeley soared by 93p, or 7.3pc, to £13.60.

http://www.guardian.co.uk/business/marketforceslive/2011/dec/02/berkeley-london-house-demand

Smart Investor: are Berkeley's foundations solid?
http://www.citywire.co.uk/money/smart-investor-are-berkeleys-foundations-solid/a534467/full


by Smart Investor on Oct 21, 2011 at 04:00


With the homebuilding sector having taken a battering, Smart Investor considers whether now's the time to buy into Berkeley Group Holdings (BKGH.L).

Which sector's missing from the FTSE 100?

Run your magnifying glass down the FTSE 100 and you may notice that a sector appears to be missing. It's a sector we're all connected to, and one that politicians, investors and virtually all people above the age of 21 obsess over. The sector is housing and, as a result of substantial share price falls, there are no homebuilders listed on the FTSE 100.

This is not wholly surprising. After all, we are still enduring a banking crisis and very slow growth, so in spite of ludicrously low mortgage rates, many people’s desire for a house purchase is backed up by little or no capital. In turn, house builders are unlikely to be enjoying the level of sales that they were pre-credit crunch, meaning their bottom lines (and share prices) subsequently suffer.

Of course, as a value investor it is my aim to buy low and sell high, so now seems to be an opportune moment to focus on house builders. In this article I'm going to turn my attention on Berkeley Group Holdings (BKGH.L).

Berkeley under the spotlight

The company was founded in 1976 by current chairman Tony Pidgeley, and specialised in executive homes. It has since branched out into larger developments incorporating mixed-use schemes, apartments and refurbishments. Along the way it developed other brands such as St James and St Edward, joint ventures with Thames Water and Prudential respectively.

Today it employs 1,000 people and has a market capitalisation of £1.55 billion. A point to note is that it operates mainly in the south east of the country, where prices are higher and demand is, arguably, more resilient.

Indeed, 'resilient' has been the byword for the firm’s performance over the past five years. Net profit of £135 million in 2007 dipped to £79 million in 2010, but recovered slightly to £94 million in 2011. While some rivals posted losses as the credit crunch started to bite, Berkeley Group stayed in the black, albeit at a reduced level. This is significant because it showed the business to be one that could remain profitable throughout the ‘bust’ part of the economic cycle.

Return on equity of 10.5% in the most recent financial year is acceptable but not impressive. Over the past five years, return on equity has averaged 13.4%, which is reasonably good when you consider the volatile trading conditions that the company has faced.

Lack of dividends

However, in spite of remaining profitable the company has maintained its zero-dividend policy – it has not paid a dividend since 2004. This is disappointing, and potentially rules the company out for an investor seeking income. Of course, a recent announcement that the company is to return cash to shareholders via dividends at keystone dates over the next 10 years is encouraging, although with a track record of no dividends it perhaps should not be seen as a guarantee.

As for free cash flow, this has averaged £90 per annum over the past five years versus net profit of £106 million per annum over the same period. This minor difference is quite acceptable, and shows that free cash flow is perfectly reasonable.

Turning to viability, debt has been kept low throughout the past five years. Current gearing using the debt/equity ratio is 24%, which is low and cuts the company some slack with regards to the moderate return on equity. In addition, double-digit interest coverage shows that the company has ample headroom when servicing its loans.

Although Berkeley cannot command an economic moat of the type of some FTSE 100 peers such as those in healthcare, it nevertheless enjoys some form of moat in the form of land banks.