Builder raises hopes
Jan 18 2008 by Iain Laing, The Journal
SHARES in Barratt Developments rallied yesterday after the housebuilder showed signs of weathering the current storm in the property market.
Analysts said the half-year trading update from Barratt was more positive in tone than statements from rival builders.
While volumes for the six months to the end of December were down 15% on a like-for-like basis, the company entered the new calendar year with an order book worth 6% less than a year earlier, at £1.26bn.
Barratt described this figure as encouraging, but said it was too early to call prospects for the market during 2008.
Fears of a property crash have sent Barratt shares down 65% in the past six months, but they recovered some lost ground yesterday to stand almost 10% higher. Analysts at Panmure Gordon said: “The Barratt trading update is more positive in tone than statements heard from other housebuilders in recent days.
“We are concerned that things will get more difficult over the coming months and therefore, while we expect the shares to trade higher today, on a 12-month basis we maintain our hold recommendation.”
Barratt, which bought rival Wilson Bowden for £2.2bn in February last year, said completions during the six months to December 31 on a pro-forma basis had dropped to 9,056 from 10,623 during the same period in 2006. Overall selling prices during the second half of last year fell by 0.9% to £177,000. But the firm said the sales figure exceeded its estimate of 8,750 made in November, and that average private selling prices were up 0.5% during the period.
Other housebuilders, such as Bovis Homes, Redrow and Charles Church owner Persimmon, have also posted year-on-year drops in completions this year.
Barratt chief executive Mark Clare said: “Against a backdrop of a more difficult housing market, we have continued to trade satisfactorily, with prices holding up and costs reduced.” He said that though the “historically strong” spring selling season was approaching, it was still too early to know what the market would bring. Its order book for the year is 69% complete, compared with 74% at the same time last year.
Broker Numis forecast pre-tax profits of £530m for the year, against £454m last year.
Analysis
VINAY BEDI, fund manager at Newcastle stockbroker Brewin Dolphin, said “There is nothing wrong in trying to put a brave face on increasingly difficult circumstances and Barratt did manage to achieve this. …
“Yet the implication that its drop in forward orders for this year of only 6% – accepting that this is better than many of the other housebuilders – is a positive, was actually latched on to by the City and led to an initial strong rise in the share price.
We have to remain more cautious, both of Barratt and the sector …”
