Berkeley Group tempers profit update with inflation and Brexit impact warning

·2 min read
New homes in London
Sales pricing has remained above business plan levels, which is so far offsetting building materials cost inflation. Photo: Andrew Winning/Reuters

Homebuilder Berkeley Group (BKG.L) has had a good year so far and with the economy now reopened it is expecting a healthy profit going forward.

The group reported that reservations are back at their pre-pandemic level and it is confident of earning profits of at least £518m ($716m).

The pace of reservations has left Berkeley expecting forward sales of properties of around £1.7bn by the time the group reaches its half-year end on 31 October.

"The first four months of this new financial year have seen a continuation of the resilient market conditions reported with our full-year results in June,” it said.

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It added that underlying reservations at this stage are in line with those achieved in the two years prior to the pandemic.

Sales pricing has remained above business plan levels, which is so far offsetting building materials cost inflation.

The company's shares ticked up 0.5% on Friday morning.

Berkeley Group's stock ticked up on Friday morning. Chart: Yahoo Finance UK
Berkeley Group's stock ticked up on Friday morning. Chart: Yahoo Finance UK

However, it said the operating environment remains challenging: it has continued to experience inflationary pressure in build costs and is concerned about ongoing issues in the supply chain and labour market resulting from Brexit and the pandemic.

“Right now, conditions are good. Yes, there are cost pressures out there, especially for building materials. But selling prices are rising, leaving profitability strong," said Steve Clayton, Hargreaves Lansdown Select fund manager.

Meanwhile, a pending return of capital will see Berkeley pay £451m to shareholders and it intends to allocate a further £228m of surplus capital to increasing its land buying, to capitalise on current, favourable market conditions.

“We hold Berkeley in our HL Select UK Growth Shares fund because of its strong cash generation,” said Clayton.

“Berkeley takes on the big, complex projects that rivals find daunting. That means it can buy land cheaply, because it can be the only one that turns up to the auction," he added.

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