Barratt Developments had a booming 2014 as profits doubled and dividends went up fourfold. The homebuilder foresees a continuation of this growth rate, but admittedly at a slightly slower rate.
Its share price has increased by 250% in the past three years as ultra-low interest rates, the government’s help to buy scheme, and a rising property market have helped the company turn its fortunes around since the financial crisis.
Last year the housebuilder saw the number of completions and the average selling price increase by 8.6% and 12.9% respectively. In the same year the construction company revealed a 103% jump in full-year profits, and expects demand to remain high as the land bank is big enough to cover the next five years’ worth of developments.
Barratt Developments has stated that the changes introduced by the Bank of England regarding the UK mortgage market have not curtailed its sales. The new regulation surrounding lending policy focuses more on properties at the high end of the market and has less of an impact on Barratt Developments. Property prices in the UK are tipped to return to single-digit growth this year and the company is prepared for a slowdown in the rate of growth.
Shares in Barrett Developments hit a new seven-year high recently as the market has high hopes for the company. Last year the homebuilder issued a total dividend of 10.3p, which was a 300% increase on the previous year. It has also pledged to return £1 billion to its shareholders over the next three years.
Barrett’s peers are also putting in a strong performance, and Redrow recently announced a ‘record’ first half and Bovis Homes had an ‘excellent’ year. Barrett Developments will need to register a good first half in order to keep up with the rest of the homebuilders.
Barratt Developments will reveal its first-half numbers on Wednesday 25 February, and the consensus is for revenue of £1.54 billion. The company will announce its full-year numbers in September, and the market is expecting revenue of £3.49 billion and adjusted net income of £430 million. These forecasts equate to an 11% rise in revenue and a 41% increase in adjusted net income.
Equity analysts are bullish on Barratt Developments, and out of the 19 ratings, ten are buys, eight are holds and one is a sell. The average target price is 499p, which is fractionally higher than the current price. Investment banks are even more bullish on Redrow, and out of the 17 recommendations, 12 are buys and five are holds. The average target price is 388p, which is 7% above the current price.
The £5 level is acting as resistance and should this level be held the downside support at 480p will be brought into play. If that mark is punctured then the 200-hour moving average of 470p will be in sight. If £5 is retaken the upside resistance at £6 will be the target.