Berkeley warns profits to fall 30% next year as Brexit volatility continues
The housebuilder said profits would return to more normal levels in the next financial year.
Housebuilder Berkeley has warned that strong earnings growth is unlikely to last, with profits set to come in a third lower next year as it continues to battle Brexit headwinds across the London market.
The company – which primarily operates in London and the South East – said pre-tax profits jumped 15.1% to £934.9 million over the 12 months to April 30, up from £812.4 million a year earlier.
Berkeley cheered its results, but said they marked a “peak” for earnings which will be “returning to more normal levels from 2018/19, when profits are anticipated to be around 30% lower”.
It came as the housebuilder logged a 0.7% fall in revenues to £2.7 billion, as it struggled to sell more homes last year.
Berkeley said it sold 3,536 homes – down more than 9% from the 3,905 sold a year earlier – at an average price of £715,000.
That was compared to average prices of around £675,000 a year earlier.
Looking at the London market as a whole, Berkeley noted that overall transaction volumes were 19% lower than two years ago while new starts were 30% below those in 2015.
Berkeley said it has been “cautious” in its investments but signalled it was set to push past short-term volatility sparked by Brexit uncertainty.
It has now raised profit guidance by nearly £75 million for the five years to 2021 to £3.375 billion.
Chief executive Rob Perrins said: “London’s attributes are unique and well known and will endure well into the future… It is an environment in which, when the right conditions are present, growth, innovation and prosperity for all, will flourish.
“At present, political and economic uncertainty, in part due to the uncertainty around Brexit, weigh on sentiment but do present opportunities for customers who can look beyond this short-term volatility.
“Berkeley, with its unrivalled financial strength, land position and expertise, is able to look past this prevailing uncertainty with measured confidence but, like all responsible businesses, is cautious in its investment in this environment and this will determine the speed with which it delivers the value from its assets in the medium term.”
Berkeley shares were down 2.7% at the start of trading.
David Madden, a market analyst at CMC Markets UK, said that while Berkeley’s developments are popular with overseas investors, it is unlikely to have reaped the same benefits from the Government’s help-to-buy scheme as its rivals, given that its homes are often too pricey to qualify.
Its pricing structure also means it likely failed to benefit from amendments to stamp duty, which saw the tax scrapped for first-time buyers on purchases of up to £500,000.
Mr Madden said: “It was very ambitious of the company to set out high targets in an era of political uncertainty.
“UK house prices on the whole have continued to rise since the EU referendum, but recently London prices have fallen.
“However, given the surge in house prices in the capital it’s hardly a surprise we have seen a small pullback.”