Berkeley in land grab

19th Mar 2012 07:02

Berkeley Group, the house builder focused on London and surrounding areas, said demand for its residential property in 2012 has remained resilient, encouraging it to top up its land bank.Despite the wider economic challenges, Berkeley said it has delivered a robust trading performance over the period, most noticeably through the further growth in cash due on forward sales, which currently exceed £1bn compared with £813m at May 1st 2011, the beginning of the firm's current financial year.The group said that since the beginning of November it has launched seven new development schemes, while it has acquired or agreed terms on seven more sites. The new sites will cost the company in the region of £80m in aggregate, and are in addition to the eight new sites it acquired in the first half of the financial year.In respect of planning, the land bank has been enhanced in the second half of the financial year with detailed consents on seven sites which previously did not have a residential planning consent and 10 detailed consents pursuant to existing outline or master-plan consents. The group expects that the gross margin potential in Berkeley's land bank will exceed £2.5bn at the end of the financial year, which is at the higher end of the guidance provided at the half year. Berkeley had £84m of net debt at 29th February, 2012, against its available banking facilities of £450m. It is currently anticipated that Berkeley will be moderately indebted at the financial year-end.Ahead of Tuesday's Budget, the company put in a plea for a stable regulatory and taxation environment that affords customers the confidence to acquire new homes in the UK. Berkeley said it "warmly welcomes" recent government initiatives such as the "New Buy" scheme, which is expected to provide an additional stimulus to support demand for new homes and in which Berkeley will participate in full.The board reiterated its guidance provided on December 2nd 2011 that Berkeley aims to achieve a pre-tax return on equity for the full year in line with the first half performance of 20.8%. It also repeated its prediction that it will achieve its aim of doubling pre-tax profits to around £220m, as outlined in its five-year plan, some two years early by the end of April 2013. Market consensus for profit before tax for the year to the end of April 2013 is £199m. The group said it also well placed to enhance the value of its land bank to some £3bn by April 2015. "This puts in place the solid foundation from which to return £13 per share in cash to shareholders by September 2021 with the first dividend of £4.34 per share scheduled to be paid by September 2015," the group said.The plans to bump up the dividends had also been previously announced."The trading update to 19th March 2012 goes a long way to prove the group's exceptional strengths in land and cash generation," claimed Northland Capital Partners, which has a "buy" recommendation on the stock."With a return on equity this year of over 20%, the group has the means to deliver on its promises and still have a larger business structure in 2021 than is the current position. It has three key sites that will generate most of its cash requirements for the £1.7bn cash return," the broker added. "We see the prospect of a further margin improvement over the coming three years. The overall reservations level is now 15% up on last year and, given the group's approach to pricing and the better margins on new sites, this should be a significant driver of performance in the current financial year," Northland suggested.jh