Record profits for Barratt but clouds gather
Analysts warn outlook growing uncertain
Britain’s biggest housebuilder Barratt Developments has posted a healthy rise in annual profits as it hailed an “outstanding” year.
The group reported a 9 per cent rise in annual pre-tax profit to a record £835.5m. Revenue increased 5 per cent to £4.87bn.
However, analysts warned that the outlook for housebuilders is looking increasingly uncertain as Brexit negotiations falter.
Richard Hunter, head of markets at interactive investor, said: “With interest rates now potentially set on an upward curve and the economic outlook increasingly uncertain as Brexit negotiations falter, the (housebuilding) sector is in the firing line.
“In addition, rising construction costs and the possibility of any Government withdrawal in its current quest to reduce the housing shortage in the UK cast long shadows. Any weakness in house prices is being seized upon and despite Barratt‘s protestations, these factors are prevalent.“
Laith Khalaf, senior analyst at Hargreaves Lansdown, said that while Barratt’s results were positive, worries about the housing market persist.
“The market is worried about three things which are out of Barratt’s control – Brexit, interest rates and Help to Buy,” he said.
“There are concerns that withdrawal from the EU may not be an entirely smooth ride, and that puts a dampener on stocks like Barratt, which are plugged into the domestic economy.
“The Bank of England is raising interest rates, albeit slowly, but that’s a reversal of direction from the last 10 years of monetary policy.
“Finally, the end of the Help to Buy scheme is hoving into view, and unless the Government extends this in some form beyond 2021, that spells the removal of a key lynchpin in the new build property market.”
Barratt said that completions rose 1.1 per cent to 17,579, the highest number in a decade, and the average selling price on completion increased 5 per cent to £288,900.
Barratt said market conditions remain good and the availability of attractive mortgage finance and the Government’s Help to Buy scheme continue to support robust consumer demand.
Chief executive David Thomas said: “The group has had another outstanding year delivering a strong operational and financial performance, and our highest volumes in a decade. As the UK’s largest housebuilder, we are helping to address the country’s housing shortage – creating jobs and supporting economic growth whilst continuing to lead the industry in quality and customer service.”
The positive comments come despite reports surfacing over the weekend that Help to Buy will be scrapped in 2021, as well as warnings from rival firms over Brexit.
Barratt also announced new medium-term operational targets, including volume growth of 3 to 5 per cent per year and a minimum 25 per cent return on capital employed.
Forward sales rose 11.1 per cent to £3bn.
Mr Thomas added: “The group starts the new financial year in a good position with a strong balance sheet, healthy forward sales and robust consumer demand supported by a positive mortgage environment.”
Russ Mould, investment director at AJ Bell, said: “The latest results from the housebuilders will do little to settle the argument between bulls and bears over the sector.”
17,579 The number of completions reported by Barratt, the highest in a decade.