Positive for Barratts

Barratts has echoed the positive noises coming from the housing sector with a robust period of trading.

Article updated: 14 July 2021 8:30am Author: Richard Hunter

In particular, net private reservations per week have now recovered and are exceeding pre-pandemic levels, with forward sales ahead by 25% compared to 2019. The previously flagged difficulty of recovering pre-pandemic housing completions has not yet been overcome, although a stronger number than the one the company had anticipated has left the figure just 3.4% shy of a return to normality.

Total average selling prices have also risen to £289000 from £280000 last year, given underlying inflation effects, and the general effect of the strength in trading means that pre-tax profit is now expected to come in at the top end of market expectations.

At the same time, the company is not resting on its laurels in keeping the momentum going, with a land spend for the year of £877 million, subject to its own testing requirements of cost and likely profit to be achieved. The financial position overall has also markedly improved, with net cash now standing at £1.3 billion (£308 million in 2020 and £766 million in 2019), with an additional unused revolving credit facility of £700 million providing further support if required.

The previously announced return to a dividend payment was a welcome development, although the current yield of 1.1% is anaemic by historical standards. Even so, a projected yield of around 4% should be sufficient in restoring what has been an attractive factor of the housebuilders over recent years, namely a punchy dividend income in addition to capital return.

There are some elements of caution around the sector, despite the company’s upbeat outlook. The fallout from the withdrawal of government aid schemes is yet to be felt in terms of UK unemployment and consumer confidence, while another strong inflation reading will also remind investors that interest rate rises remain on the horizon, although not an imminent threat.

At the same time, there will be have been a temporary boost within the numbers given the likes of the stamp duty holiday and the Help to Buy scheme move, and the cost of safety improvements to legacy properties is an ongoing factor, amounting to £81 million over the year.

Overall, however, the clouds are clearing and Barratts is well positioned into the new financial year. The share price has also seen the effects of an improving trading display and has risen by 29% over the last year, as compared to a hike of 15% for the wider FTSE100. With strong demand and a promising outlook in evidence, market consensus also remains positive on prospects, coming in at a strong buy.

More from Richard Hunter: read more articles directly on the interactive investor website.

These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees.

Richard Hunter

Head of Markets, interactive investor

Richard has over 30 years of stockmarket experience and is one of the UK’s foremost commentators on market matters and a regular contributor for the BBC (BBC News Channel, Wake Up to Money and the Today Programme), CNBC and Bloomberg. Richard’s expert commentary also appears across the national and specialist press. He previously held senior positions at Hargreaves Lansdown and NatWest Stockbrokers.

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