Thursday tips round-up: Berkeley Group Holdings

18th Jun 2015 11:22

The premium on Berkeley Group Holdings shares on a price-to-book basis is justified. Above all else homebuilders are property companies. Their sucess hinges on their saviness when it comes to land, which makes up four-fifths of the company´s assets. However, the firm, whose business is concentrated mostly in London and southeast England, is trading at a similar price-to-earings ratio as its peers´ of 13 times earnings.The group said yesterday profits over the next three years will be about a fifth higher than previously forecast and it retains an impressive commitment to capital discipline. It also has a clear capital return plan in place, making it harder to backtrack on commitments. Hence, the stock also deserves a premium rating on the basis of its p/e multiple, the Financial Times´s Lex column argues.Berkeley Group Holdings is an atypical company. Against analysts´ expectations on Wednesday the company said its profits this year would be little-changed - what is, in effect, a profit-warning. The caveat is that it guided towards £2bn in profits for over the next three years. That translates into £750m of profits in each of the next two years. The company is the most exposed to the London property market and owns some of the capital´s prime locations. However, the fact that it specialises in developing awkward pieces of land and the sheer size of some of those properties means they feed through to its profits at an unpredictable rate.On the upside, its visibility on dividends is excellent because the amount of cash due over the coming years from already agreed sales of homes has increased to just short of £3bn from £2.3bn. Furthermore, with cash piling up more quickly than expected its dividend payments may be headed even higher than analysts currently expect. Trading at 3,481p the stock rests on an assured dividend yield of over 4%, "a good reason to hold them," says The Times´s Tempus.