Barratt Developments not out of the woods yet
THE SHARE HUNTER++ WILLIAM RYDER++ HARGREAVES LANSDOWN++
THE news coming from the housebuilders has continued to be better than we expected. Barratt Developments is no exception, as shown in last week’s trading statement.
House prices appear to be holding up well, despite the lack of higher loan to value mortgages on offer. Nationwide’s house price index is showing continued strength, with house prices rising 5 per cent year- on- year in September.
Barratt also recently reported stable pricing and a very impressive recent sales rate. On average the group sold 0.87 homes per site per week. That’s actually better than this time last year. That’s good going, but the impact of coronavirus hasn’t gone away. Barratt adopted a number of measures to preserve cash during the crisis, including cancelling its dividend.
When the dividend returns management intends to pay out 40 per cent of profits, which will represent a hefty cut compared to what investors received previously.
That isn’t ideal for investors in the short- term, but it’s the right decision to protect Barratt’s cash while the economic outlook remains uncertain.
It doesn’t help that the current form of Help to Buy is due to come to an end in 2021. The scheme was used by 51 per cent of Barratt buyers at the last count. Barratt wants the Government to consider further help for first- time buyers, and the Chancellor is likely to want to support house prices.
Barratt currently trades on a forward price to earnings ratio of 10.2, which is roughly in line with the long- run average. This actually indicates confidence from the market, given the current outlook and the fact that housebuilders are usually valued quite conservatively.
Construction sites may be slowly getting back into action and buyers are showing willing, but we’re not out of the woods yet.
“This article is designed for investors who make their own decisions without advice, if unsure whether an investment is right for you, you should seek advice. Shares can rise and fall in value so you could get back less than you invest.”