Berkeley Group can now plan for the next five years knowing that a Conservative government will help the housebuilder. Its share price has been on the rise for several years as a strong property market was fuelled by low interest rates, more aggressive lending by banks, and the help to buy scheme that was introduced under George Osborne. The company is at the higher end of the homebuilders, and the share price took a knock in the run up to the election for fear of Ed Miliband being in Downing Street, but the Tory majority has since rejuvenated confidence in the firm.
Berkeley’s average house selling price is £649,000 which is up 85% on the year, but the number of homes sold was down 40% during the first six months of the year. The company reported a 24% rise in revenue and an 80% jump in first-half profits, and now that the political uncertainty has been cleared up the company can map out its five-year plan with confidence.
Under the new stamp duty scheme houses costing in excess of £937,000 will pay a higher rate, but this should largely bypass customers of Berkeley. The UK property market is showing some signs of cooling but it is far from a crash, and with the Bank of England unlikely to raise rates this year this monetary stability will assist the company.
When Berkeley reports its final-year figures, the market is expecting revenue of £1.89 billion and adjusted net income of £374 million. These forecasts represent a 16% rise in revenue and a 28% increase in adjusted net income. The homebuilder will also report its second-half numbers on the same date, and the market is anticipating revenue of £940 million compared with first-half revenue of £1.02 billion.
Investment banks are bullish on the homebuilder, and out of the 18 recommendations, nine are buys, eight are holds and one is a sell. The average target price is £29.77, which is 2.75 below the current price. Equity analysts are equally bullish on its rival Redrow. From 16 ratings, 11 are buys and five are holds, with an average target price of 440p, which is 2.8% above the current price.
The record-high of £30.82 is the initial target and then £31 will be in sight. If that mark is taken out £32 will be next on the radar. A drift lower will provide a buy opportunity, and support will be found at £30 with the £28 mark the next support level down.