Berkeley Group has big ambitions

The high-end homebuilder has high expectations for the next three years. 

A flat being built
Source: Bloomberg

Berkeley Group will announce its first-half results on 4 December, and traders are anticipating revenue of £872 million compared with last year’s second-half revenue of £1.09 billion. The company will announce its full-year results in June 2016, and dealers are expecting revenue of £1.8 billion and adjusted net income of £377 million. These forecasts equate to a 15% fall in revenue and a 5.9% rise in adjusted net income.

Berkley’s share price benefitted greatly from the Conservative victory in May, and the company’s annual profits jumped over 40%. The homebuilder specialises in high-end homes in London and the South of England, and a mixture of weak supply coupled with high demand has helped it.

The low interest-rate environment has also played a role in assisting the company, and the latest remarks from the Bank of England suggest that interest rates will not move higher until 2017. The company has acquired five sites for development, and it plans to earn approximately £2 billion over the next three years.

The Tory win in the general election this year has allowed the homebuilder to map out a plan for the next few years, but the London mayoral election in 2016 and the UK referendum over EU membership in the next two years will add political uncertainty. George Osborne’s plan to increase the stamp duty for offshore and buy-to-let investors will also weigh on Berkeley’s share price.

Equity analysts are bullish on Berkeley Group, and out of the 14 ratings, five are buys, eight are holds, and one is a sell. The average target price is £37.76 which is 19% above the current price. Investment banks hold a less bullish outlook for Persimmon, and out of the 15 recommendations, one is a buy, nine are holds, and five are sells. The average target price is £20.97, which is 11.5% above the current price. 

Technical analysis from Joshua Mahony MSTA, Market Analyst at IG.

Berkeley’s shares have been on the wane in the fourth quarter of 2015, with the price falling back to the £30.00 mark this month. The spike higher today has shown that £32.00 is a key level of note, which will have to be broken above for the bullish sentiment seen in the first three quarters to return.

Given the importance of the £30.00-30.67 support zone, the ability to close below the zone will be key to understanding whether this selloff is likely to continue. Major levels of resistance to note are at £32.00, £33.54, £35.32 and £35.70. Meanwhile, key support levels are at the £30.00, £28.47 and £27.59.

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