Shares in London’s biggest housebuilder Berkeley fell heavily today as it warned investors to brace for a period of lower returns over the “medium term.”
The company also revealed that its long serving chief executive Rob Perrins - a respected industry figure who has been with Berkeley since 1994 and led it since 2009 - will step up to become executive chair in September.
He will be replaced as CEO by Richard Stearn who has been Berkeley's finance chief since 2015.
The boardroom reshuffle was triggered by the decision of the current chairman Michael Dobson to step down at the time of the AGM on 5 September.
Berkeley was announcing full year results for the 12 months to end April, when pre-tax profits dropped 5% to £528.9 million at a time of “geopolitical and macroeconomic volatility.”
But the company said that with 75% of sales secured for the coming year it was “well-placed” to achieve its profit guidance of £450 million. This is likely to be followed by a similar level of profits in 2027.
Perrins, who today bought £500,000 worth of Berkeley shares, said returns will lower than targetted in the medium term “while the current operating environment volatility persists, and we invest in our BTR platform to increase future delivery and maximise long-term value for shareholders.”
Berkeley targets a 15% long term return on equity over the course of the economic cycle.
The shares dropped 8.6%, or 356p to 2794p with other housebuilders also seeing their share fall.
But Perrins added: “There is good underlying demand for our homes, with transaction volumes gradually improving over the course of the year.
“However, consumer confidence remains finely balanced and a more meaningful recovery requires both improved sentiment and macroeconomic stability.
“Berkeley is fully committed to the Government's housing-led growth agenda, and we are submitting planning applications on all our sites to accelerate delivery.
“We continue to work with all levels of Government to ensure planning consents are appropriately viable following a number of years of extreme cost inflation and regulatory change and can move into production.”
“We were therefore delighted to see the increase in Affordable Housing funding and the 10-year social housing rent settlement announced in last week's Spending Review, which represent positive progress towards achieving their housing ambitions.
Berkeley focuses on brownfield development with 92% of the 4,300 homes it delivered in the year on regenerated brownfield land.
The company said it can allocate £5 billion of capital to new investment over the next decade, including delivering 4,000 homes for rent through its Build to Rent (BTR) platform.
AJ Bell investment analyst Dan Coatsworth said“The departure of its chair and a warning that returns will be below targeted levels in the medium term put housebuilder Berkeley on the back foot.
“The company is guiding for a substantial drop in pre-tax profit for the current year and for profit to remain flat in the year afterwards, with the relatively downbeat outlook reflecting a volatile operating environment.
“Berkeley previously earned a reputation for shrewdly calling the housing market cycle, so the company’s conservative guidance in its latest results announcement has made investors sit up and take notice. That’s caused shares across the housebuilding sector to fall.”
“But the company is not letting short-term disappointment distract it from long-term goals. It is planning major investment and a big expansion in the build-to-rent market.
Richard Hunter, Head of Markets at interactive investor, said: “Berkeley has an ambitious strategy and a great deal in its favour, but ultimately it operates in a cyclical sector which is currently constrained by the wider economic environment.
“There have been signs of progress, but for potential buyers the level of interest rates and general affordability are under some strain. In the year, Berkeley saw private sale reservations increase by 5%, but levels remain 30% shy of the previous year.
He added: “The group currently has 52714 plots which equates to £6.7 billion of future gross margin. At the current time, the forward order book is already 75% sold for the coming year with a value of £1.4 billion, which gives some visibility of earnings, even though the figure has dropped from £1.7 billion in the corresponding period.”
