Barratt predicts an upturn for housing

Feb 28 2008 by Graeme King, The Journal

THE chief executive of housebuilder Barratt remains upbeat, saying there are signs of better times ahead in the housebuilding sector despite seeing like-for like turnover fall by 17.4%

Mark Clare said the company had reduced its spending on building land as the fall in the market over the past six months of 2007 had exceeded Barratt’s predictions.

But he maintained that last year’s £2.2bn acquisition of Wilson Bowden – the cause of much of the company’s £1.7bn debt – would prove a sound acquisition in the long term.

For the six months up to December last year, Barratt’s turnover was up 38.4% to £1.65bn and pre-tax profits rose to £201.8m from £176.6m.

The market was convinced by Mr Clare’s optimism and Barratt shares ended the day’s trading up nearly 3% at 436p – though still a long way from the 1100p level the company was enjoying a year ago.

The cornerstone of Mr Clare’s optimism yesterday was Barratt currently having £1.61bn of forward sales, with 80% of its targets for the year already in the order book.

The company has also seen an increase in visitor numbers to its developments in recent weeks – a key indicator of the health of the housebuilding marketplace.

Mr Clare said: "These results are in line with our pre-close statement, though completions are marginally ahead of what we expected then. We would characterise the market in the last six months as pretty tough.

"Based on the past seven weeks, visitor numbers are up 36% on the average for the first half. We have made an encouraging start to 2008 where a lot of commentators said the spring selling season would be worse."

Mr Clare defended the company’s level of debt, largely incurred through the acquisition of Wilson Bowden, and said it would be reduced between the half year and year end.

He said: "When we did the transaction, we made sure we had enough headroom for a mild downturn. What we have seen has been rather more substantial.

"But by adjusting our land spending down by 20%, we have created the headroom that we originally wanted.

"Wilson Bowden is a strong asset. We still think the acquisition is a good one and there is more value to extract."

Vinay Bedi of Brewin Dolphin Wealth Management in Newcastle, said: "If their optimism turns out to be well founded, they have got a chance to move forward, and the benefits of the integration will still be seen in the share price."

Barratt Developments:

Six months to December 31, 2007

Turnover: 2007, £1.65bn; 2006, £1.19bn – +38.4%

Pre-tax profit: 2007, £201.8m; 2006, £176.6m – +14.3%

Completions: 2007, 9,056; 2006, 7,206 – +25.7%

Dividend: 2007, 12.23p; 2006, 11.38p – +7.5%