Berkeley to hit targets two years early

5th Sep 2011 07:39

London and south-east focused house builder Berkeley Group said market conditions in the four months ended 31st August 2011 have enabled further growth in forward sales which are currently in excess of £850m. Together with the performance in the period since 1st May 2011, the board believes that it is now positioned to achieve the profit target set in the five year plan at least two years earlier than originally anticipated, "to the extent that market conditions prevail".Berkeley has secured a further seven sites in the May to July quarter. Improved consents have been achieved in the period on a number of schemes, including sites in Battersea, Kew, North Bersted and Gillingham. "These successes, coupled with further investment in work in progress, indicate that market conditions, as opposed to delivery, will be the most important factor in determining the extent of further growth in the business," company Chairman Tony Pidgley said."Our ability to produce homes and places where people want to live gives us confidence that we can achieve our return to shareholders over the long term," Pidgley told shareholders at the company's annual general meeting.Northland Capital Partners reiterated its "buy" recommendation for the stock. "From here we see a further margin improvement as the lower cost land, acquired during the recession, starts to come into production. The overall reservations level is now 30% up on last year and, given the group's approach to pricing and the better margin on new sites, this should be a significant driver of performance in the current financial year. This is supported by the group's strong cash potential given its gross margin of over 28% and its £42m net cash position on 30 April 2011," the broker said. "With stronger site visitor levels, and a largely trade-up and overseas buyer market, the impact of restricted mortgage availability is less of an issue for the company. Nonetheless, it could fly if the shortage was overcome. The rating is a BUY and we see no reason to remove this stock as our favoured investment in the sector," the broker concluded. Panmure Gordon proved harder to impress, sticking with its "hold" recommendation and 1200p price target.it is, however, upgrading its forecasts for the year to April 2012: the profit before tax forecast moves from £155.7m to £165.2m, giving earnings per share of 93.2p and net asset value of 781p.Berkeley Group trades on a price-to-net-asset-value (PNAV) of 1.51, Panmure notes. "We believe the stock deserves to trade on both a premium to the sector and to NAV given the strong returns seen from the company. That said, looking at valuations across the sector at the moment, the current premium rating looks about fair," the broker concluded. --jh