Dodd believes that Berkeley’s focus on buying land during economic downturns, when land prices are lower, and then developing it during periods of economic growth, puts the company in a strong position. This counter-cyclical approach has allowed Berkeley to build up a land bank that can last for 16 years, ensuring a steady supply of development opportunities.
Dodd also highlighted Berkeley’s strong record of operational excellence, which has helped the company deliver consistent profits and returns. He believes that Berkeley’s focus on high-quality developments in prime locations, along with efficient project management and cost control, will continue to drive its success.
Berkeley’s strategy has been particularly effective in the current market environment, which is characterized by a shortage of housing supply. Dodd believes that this supply-demand imbalance, combined with low interest rates and government support for the housing market, will continue to drive demand for Berkeley’s properties.
Overall, Dodd is confident in Berkeley’s ability to navigate through any economic challenges and continue to deliver strong returns for investors. He sees the stock as a core holding for his investment trust and believes that it offers attractive long-term potential.
Berkeley’s results beat expectations
Berkeley has reported better-than-expected results for the financial year ended April 2021. The company recorded a 6.7% increase in pre-tax profits to £518.1m, compared to market expectations of around £504m.
The strong performance was driven by higher average selling prices and a resilient demand for the company’s properties. Berkeley achieved an average selling price of £770,000, up from £644,000 in the previous year, reflecting strong demand for its high-quality developments.
The company also announced a final dividend of 500p per share, bringing the total dividend for the year to 660p per share. This represents a dividend yield of 2.34% based on the current share price.
In addition to the positive financial results, Berkeley announced that it had made progress on its sustainability goals. The company has reduced carbon emissions by 20% since 2018 and is on track to achieve its target of becoming net zero by 2030.
Berkeley’s CEO, Rob Perrins, commented on the results, stating that the company’s focus on long-term value creation and sustainable growth had paid off. He also highlighted Berkeley’s strong financial position and land bank, which provides a solid foundation for future growth.
The market reacted positively to Berkeley’s results, with the stock price rising by over 4% following the announcement. Analysts praised the company’s strong financial performance and sustainability initiatives, and several investment firms reiterated their buy ratings on the stock.
Outlook for the housing market
The housing market has experienced a strong recovery since the easing of COVID-19 restrictions, driven by pent-up demand, low interest rates, and government support measures such as the stamp duty holiday.
However, there are concerns that the market could face challenges in the coming months. The stamp duty holiday is set to end in September, which could lead to a slowdown in demand. Additionally, rising inflation and the potential for higher interest rates could impact affordability and dampen demand for housing.
Despite these challenges, many analysts remain optimistic about the long-term outlook for the housing market. They believe that the underlying demand for housing, driven by population growth and a shortage of supply, will continue to support house prices in the medium to long term.
In particular, the focus on sustainable and energy-efficient housing is expected to remain a key driver of demand. With increasing awareness of climate change and the need to reduce carbon emissions, buyers are increasingly seeking properties that are environmentally friendly and have low running costs.
Overall, while there may be short-term challenges for the housing market, the long-term prospects remain positive. Companies like Berkeley, with their focus on high-quality developments and sustainable growth, are well-positioned to benefit from these trends.
Conclusion
Berkeley’s counter-cyclical approach to buying land and its focus on high-quality developments have helped the company deliver strong financial results. The company’s performance has been supported by a shortage of housing supply, low interest rates, and government support for the housing market.
The recent financial results exceeded expectations, with higher average selling prices and resilient demand driving pre-tax profits higher. Berkeley also made progress on its sustainability goals, reducing carbon emissions and aiming to become net zero by 2030.
Despite potential challenges in the housing market, such as the end of the stamp duty holiday and rising interest rates, analysts remain optimistic about the long-term outlook. The need for sustainable and energy-efficient housing, combined with a shortage of supply, is expected to support demand for high-quality developments.
Overall, Berkeley’s strong financial performance, focus on sustainability, and counter-cyclical approach make it an attractive investment opportunity in the housing sector.