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Eyes on construction figures as Barratt updates investors

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UK Government-backed mortgage scheme (PA Wire)
UK Government-backed mortgage scheme (PA Wire)

Analysts and investors will be on the lookout for any indication that Barratt Developments is not on track to hit its construction targets when the company reveals its recent performance on Wednesday.

Barratt has said it expects to complete between 16,000 and 16,250 homes this year, which would be a rise of more than one-20th compared to last year. But worries are starting to creep into the UK’s booming property market.

“We’re keen to know whether the group is still on track to make good on that forecast,” said Hargreaves Lansdown equity analyst Laura Hoy.

“If it does hit those targets, full-year completion volumes would still be roughly 9% lower than 2019 levels, so a miss would be a disappointment.”

She said that investors can get a glimpse of the company’s performance by tracking its weekly average private reservations per active outlet. This is a “window into future demand,” Ms Hoy said.

“If Barratt continued to grow its reservation rate from last year as well as pre-pandemic levels, it bodes well for the future,” she said.

AJ Bell experts Russ Mould and Danni Hewson said that one cloud on the horizon could be the cost of remediating cladding on tall buildings in the wake of the Grenfell disaster.

The business has set aside £163 million for this, and to solve problems at a Croydon development, since 2018, they said.

They added: “Barratt does not traditionally comment on profitability in this trading update, but should it do so, the current consensus analysts’ forecast is for pre-tax income of £819 million against £492 million in 2019-20.

“Profits peaked at £910 million in 2018-19 but analysts do expect a return to that mark in the financial year that is just beginning.”

The housing sector has been boosted by booming prices in recent months. Most recently MJ Gleeson said that the average price for one of its homes increased 11.4% in the year to the end of June.

However MJ Gleeson and Barratt sell to rather different segments of the market. With a sales price averaging £283,500, Barratt’s homes are considerably more expensive than MJ Gleeson, which fetches a little over £145,000.

On Thursday, Persimmon, one of the UK’s biggest builders, said that its revenues had risen above their pre-pandemic levels. It completed 7,406 homes in the first six months of the year, only around 180 fewer than the same period in 2019.

During the first half of 2020, completions plummeted to 4,900.

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