Berkeley Group exceeds estimates with rise in first half earnings

2nd Dec 2016 07:52

(ShareCast News) - Property developer Berkeley Group reported a better-than-expected increase in first half earnings and revenue on Friday, boosted by continued strength in the London market.In the six months ended 31 October, pre-tax profit gained 33.9% to £392m compared to the same period a year earlier, exceeding estimates of about £351.7m. Revenue rose 24.1% to £1.41bn, beating expectations of £1.31bn and driven by sales of new homes in London and the South East of England.The company sold 2,076 new homes across London and the South East at an average selling price of £655,000. It compares to 2,091 new homes sold at a price of £506,000 in the first half of 2015.Berkeley added that cash due on forward sales of £2.9bn, an estimated land bank gross margin of £5.9bn and net cash of £208m, meant the group is on target to deliver a new five-year target of at least £3bn pre-tax profit beginning 1 May 2016. It has previously indicated a three-year target for pre-tax profit of £2bn from 1 May 2015."Today's strong results reflect decisions made by Berkeley following the 2008 financial crisis to invest in land at the right time, made possible by Berkeley's cyclical operating model," said chairman Tony Pidgley.He added: "During a period of political upheaval around the world, which has affected the immediate economic outlook, Berkeley has focused on its core business of regenerating run-down estates, transforming ex-industrial land, and creating successful places for people from all walks of life."Pidgley said Brexit, the US election and an increase in stamp duty in April had hurt transaction levels throughout 2016. Excluding a hiatus around Brexit, reservations for the period remain 20% down on the same period last year.Berkeley plans to launch further new products in the first half of 2017 as the market begins to adjust to Brexit uncertainty and higher stamp duty.Looking ahead, chief executive Rob Perrins said the current environment is "one of uncertainty" and he expects this to continue with short-term fluctuations."Our business is well set-up to perform strongly in these conditions and is centred around London and the South East," he said."Notwithstanding the UK's decision to leave the European Union, we believe that London will endure as a global financial centre and a place where people from all walks of life and corners of the world will continue to aspire to live and work."Numis upgraded its rating on the stock to 'buy' from 'add' and left the target price at 3,844p, citing the company's new pre-tax profit target. Based on the target, the broker said the group is on track for more than £750m of pre-tax profit in 2017 and 2018 and at least £1.5bn in the three years to April 2021, or £500m per year."Overall we think this is a decent update and the longer term guidance over PBT (being at least £500m per annum) should give comfort there is not a cliff edge in profits after the following two years," Numis analysts said."Furthermore, the reservation number is consistent with what was previously announced and therefore this should also provide some comfort."Shares rose 4.24% to 2,653p at 0902 GMT.