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Housebuilder Barratt under pressure with rising costs despite bumper profit

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Builders working on a housing estate
Barratt said it was seeing build costs rise between 4% and 5%, as materials became more expensive due to wider industry supply issues. Photo: Nathan Stirk/Getty Images

Housebuilder Barratt Developments (BDEV.L) stock dropped as much as 2.5% on Thursday morning in London as it said in its full-year results that it was under pressure from rising build costs and a dip in recent buyer demand. 

Investor caution came despite it posting profit nearly two-thirds higher than the previous year. 

Barratt's full year (ended 30 June) revenue was £4.8bn ($6.6bn). That’s up 40.7% on 2020 and 1.0% on 2019, reflecting increased completions and higher average prices compared with both 2020 and 2019.

Operating profits came in at £811.1m, up 64.4% year on year but still 10.0% below 2019. The decline on 2019 reflects lower gross margins due to legacy property costs and repayment of coronavirus grants from the government, without which margins would have improved.

The board also announced a final dividend of 21.9p per share, up from 19.5p in 2019 and nothing in 2020.

"Despite the progress the market seems disappointed with the results, and we suspect that’s down to limited detail about additional shareholder returns," said Nicholas Hyett, equity analyst at Hargreaves Lansdown. 

"The group exited the last financial year with over £1.3bn in net cash. A good portion of that is earmarked for helping the group reach 20,000 completions a year, but with land purchases already approaching that level that still leaves some surplus."

The company said it was seeing build costs rise between 4% and 5%, as materials became more expensive due to wider industry supply issues. Skilled labour shortages also had a knock-on effect as wages were pushed higher. 

Read more: Supply issues in UK manufacturing pushes up prices

Reports of rising prices of materials come as UK manufacturing is facing a crunch moment in its supply chains. PMI readings for August released on Wednesday showed that supply issues linked to COVID-19 lockdowns and the knock-on effects of Brexit led to "rapid price inflation" and rising input costs.

Shortages of inputs and delivery delays disrupted production schedules, leading to slower output growth, and also resulted in marked increases in input prices, the survey found.

The housing sector has boomed over the last year as support measures such as the stamp duty holiday pushed many to buy for the first time or relocate. Barratt said that as the waver comes to an end its top line would see a hit.

Due to the rush in the housing market the average UK house price is now close to £250,000. 

Watch: What is inflation and why is it important?

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