What Housing Market Slump? Housebuilder Barratt Expects Record Profits

Brexit uncertainty has been widely blamed for a slowdown in the UK’s property market but it certainly doesn’t seem to be hurting the country’s biggest homes builder after Barratt Developments told investors it expects to be able to confirm record profits. £910 million is expected to be banked before tax after completed, and largely sold, its highest number of new homes in over a decade over the last year.

If the final figures do match up with what is currently expected, the pre-tax profit for the year will come in around 3% ahead of the £884 million analysts had forecast. It will also add up to an 8% improvement on the £835.5 million pre-tax profit achieved in 2018.

Chief executive David Thomas told investors that the market had improved since it was dragged down by Brexit jitters late last year. The rebound since has compensated and more for the fact that reservations were down by approximately 6% as of the end of December. For the full year they are down 3% but have been compensated by a strong second half of the company’s financial year.

Over the financial year that ended June 30^th, Barratt completed a total of 17,856 residential properties with an average selling price of £274,000 each. That was the highest number of completions the company had recorded since 2008 and offset a drop in average sales prices from the £288,900 achieved the previous year. However, the drop in average sales price was attributed to the ‘product mix’ of properties sold rather than a market decline.

Barratt has been targeting improved margins by reducing the number of property models it builds to 80 from the 300 of three years ago. That helped boost the average operating margin to 18.9% from 17.7% a year earlier. However, the figure was also helped along by the disposal of a commercial property. The company’s forward orders also look healthy with a total book worth £2.6 billion, compared to £2.2 billion this time last year. Net cash reserves are £765 million, a figure put down to “overall strong trading”.

The UK’s market for newly built homes has been propped up through Brexit through a combination of low interest rates, the government-supported Help to Buy scheme and low unemployment levels. 40% of the company’s sales were made through Help to Buy. The cooling of the central London market has been absorbed by a shift of focus towards large projects on the capital’s outskirts such as 1300 homes that are being built on the site of the former Nestlé Factory in Hayes.

The company is rewarding employees for the company’s recent five-star rating by the Home Builders’ Federation customer satisfaction survey. It’s the tenth year in a row the top rating has been maintained and 6000 staff outside of the company’s senior leadership are being awarded 200 shares each, worth around £1150 at the current share price. The total investment in the reward totals around £7 million. Barratt’s share price was up 1.3% to 584p yesterday.