Barratt Developments Plc (LON: BDEV)

Business Overview
Barratt Developments Plc is engaged in acquiring land, obtaining planning consents and building homes. The company has a private home offering with price ranging from GBP 70,000 to more than GBP 1 million. The company builds homes ranging from 1-bedroom flats to 6- bedroom family homes. The company operates in around six regions delivering over 17,319 homes. The company purchases land in targeted locations and designs homes for its customers using standard house designs.

Recent News
On 16^th October 2019, the company announced a trading update. This trading update is for the 15 weeks duration from 1 July to 13 October.

Trading Statement
The company’s sales rate in the period was 0.72 net private reservations per active outlet per average week with no change as compared to the last year during the same period. During the period, the company delivered 3,252 home completions, up by 14 per cent as compared to the last year. The company reported total forward sales of 12,963 homes at a value of GBP 3,070.2 million. The company buys land at 23% gross margin and approves about 18,000- 22,000 plots for purchase this year.

Financial Highlights – Financial year 2019 (30^th June 2019, GBP, million)

(Source: Interim Report, Company Website)

In the financial year 2019, the company’s revenue declined by 2.3 per cent to GBP 4,763.1 million due to weak market conditions during the period. The company’s gross margin grew by 2.1 per cent to 22.8% due to the new product ranges and sites that have been purchased at an improved margin. The company’s operating margin also improves to 18.9 per cent due to sites purchased at higher gross margins. The company’s profit before tax was GBP 909.8 million due to an improved margin of the company. The company paid a total dividend of 46.4p in the fiscal year 2019.

Share Price Performance

Daily Chart as on 11^thDecember 2019, before the market closed (Source: Thomson Reuters)

On December 11^th, 2019, Barratt Developments Plc shares were trading at GBX 649.4 at the time of writing before the market close (at 10:40 AM GMT), down by 2.26 per cent against the last day closing price. Stock's 52 weeks High and Low are GBX 702.8/GBX 417.79. The stock has given 49.4 per cent return in the last year, and now some correction in the stock price is expected.

Valuation Methodology


Conclusion
The company has witnessed a strong financial and operational performance during the fiscal year 2019. The company is expecting a robust order book in the coming years. The company expects that the housing market would remain attractive, and the lending environment also remains positive with greater competition in the mortgage market. However, there are some risks and uncertainties faced by the company, which could impact the overall performance of the company. Brexit uncertainty could affect the operations of the company. The inability to secure strategic land options at an appropriate cost and quality could hamper the revenue and profitability of the company. Unavailability of enough working capital could affect the operations of the company. Any change in government policies, laws and regulations could impact the overall business of the company.

Based on the valuation and factors as highlighted above, we recommend investors to keep a “Watch” on the stock at the closing price of GBX 664.40 (as on 10^th December 2019, after the market closed), with support from few catalysts needs to be evaluated at a later stage.  

Berkeley Group Holdings Plc (LON: BKG)

Business Overview
Berkeley Group builds homes, parks and public places. The Company operates in residential-led, mixed-use property development. The company builds homes for customers across London, Birmingham and the South of England.

Recent News
On 6^th December 2019, the company announced its half-yearly results in an unaudited form. The duration of this period ended on 31^st October 2019.

Financial Highlights – H1 Financial year 2020 (31^st October 2019, GBP, million)

(Source: Interim Report, Company Website)

In the first half of the financial year 2020, the company’s revenue declined by 43.7 per cent to GBP 930.9 million due to a decrease in volumes and average selling price of the homes. The gross margin percentage of the company has increased to 36.1% (H1 FY2019: 29.2%) due to the mix of properties sold in the period. The company’s profit before tax decreased to GBP 276.7 million due to lesser volumes of the homes sold. Basic earnings per share of the company declined by 28.3 per cent to 176.4p due to the buy-back of 3.3 million shares during the period at the cost of £124.6 million.

Share Price Performance

Daily Chart as on 11^thDecember 2019, before the market closed (Source: Thomson Reuters)

On December 11^th, 2019, Berkeley Group Holdings Plc shares were trading at GBX 4,511 at the time of writing before the market close (at 12:50 PM GMT), down by 0.93 per cent against the last day closing price. Stock's 52 weeks High and Low are GBX 4,728/GBX 3,208. The stock has given 36.1 per cent return in the last year, and now some correction in the stock price is expected.

Valuation Methodology


Conclusion
During the first half of the financial year 2020, the company delivered 1,389 homes which are more than 10 per cent of London’s new private and affordable homes. The company is investing in regeneration programmes which could benefit it in the long term. The company is facing some principal risks and uncertainties, which could impact the overall business of the company. Changes to economic conditionscould lead to a reduction in demand for housing which could impact the company’s revenue. Changes in government policy, laws and regulation could affect the revenue and profitability of the company. An inability to source suitable land could affect the business of the company. Liquidity crunch could affect the operations of the company. An inability of customers to secure enough mortgage could impact the revenue and operations of the company. Failure in cybersecurity and a critical data breach could hamper the operations and reputation of the company.

Based on the valuation and factors as highlighted above, we recommend investors to keep a “Watch” on the stock at the current price of GBX 4,562 (as on 11^th December 2019, before the market closed at 10:15 AM GMT), with support from new catalysts needs to be evaluated at a later stage.  
 
 
*All forecasted figures and information have been taken from Thomson Reuters. 

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