Berkeley forecasts flat profits after Covid storm

Housebuilder Berkeley has said it is on track to deliver flat profits during its current financial year.

The company forecasts profits will be around £504 million, the same level as the financial year ending 2020.

In an update to shareholders, it said that forward sales are set to rise above £1.7 billion at the end of the financial year.

However, the short update also said the value of the homes that customers have already reserved with the group is expected to be down by a fifth.

It said: “Sales reservations have been robust where we have had availability of stock. While inquiry levels have been consistently strong, Berkeley has re-profiled the launch of new developments and phases into the market until the economy opens up post-lockdown and, as a consequence, we anticipate the value of reservations for the current financial year to be around 20% lower than last year.”

Berkeley has been sitting tight on some of its homes, which are generally more expensive than those of some other listed housebuilders.

The company has therefore been less focused on making large numbers of sales before the end of the stamp duty holiday later this year.

Shares fell more than 6% after the news.

Laura Hoy, an analyst at Hargreaves Lansdown, said Berkeley’s position at the higher end of the property market has insulated it from some of the hits of Covid.

Many higher earners have been able to continue working from home, often saving more than before the pandemic as they have not been spending money on travel and eating out.

“The concern for Berkeley and its exposure to London is whether or not the so-called race for space will be a trend that endures,” Ms Hoy added.

“With property prices in Greater London down more than 10% in 2020, that could eventually ding the group’s rock-solid balance sheet. It’s unclear whether the forecast 20% reduction in reservation values is an indication that cracks are starting to form.”

AJ Bell investment director Russ Mould said Berkeley’s plans to phase its developments as the economy opens could seem shrewd, rather than “operating at 100 miles an hour” like some of its rivals.

“Given Berkeley has previously earned a reputation for calling the housing market successfully, albeit under its late chairman Tony Pidgley, this might provoke some concern among its rivals.

“On the flipside, Berkeley could miss out on some of the demand created by the current stamp duty holiday which is due to end in September – even if the elevated average selling price on its high-end homes makes this a less relevant consideration than for some other housebuilders.”