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‘London pride’: student dorm sale helps Berkeley hit 4-year high
Jump in first-half profit to £101 million includes the sale of Berkeley (BKGH.L)'s stake in a student housing scheme in Clapham Junction in London.
Shares in Berkeley Group (BKGH.L) surged to a four-year high on Friday, after the London-focused builder and developer said first-half profit soared following strong growth in sales and the disposal of a student residence in London.
Profit before tax rose 64% to £101 million in the six months to 31 October, up from £61.6 million a year earlier, the Weybridge-based firm said. The figure included £30.7 million ‘exceptional profit’ from the sale of its stake in a student housing scheme at Clapham Junction in London, Berkeley added.
Apart from the Clapham disposal, a 21% increase in sales – from 1,249 to 1,506 homes – was the main driver of the results, although the average selling price eased slightly to £254,000, down from £262,000.
Tony Pidgley, Berkeley's chairman, said in a statement: ‘Looking forward, the further increase in forward sales and the strong balance sheet, which remains ungeared, means Berkeley is increasingly well positioned to capitalise on the current market conditions.’
Berkeley shares leapt 56p, or 4.4%, to £13.23 in late morning trading, after hitting £13.31 – their highest since November 2007. The stock has taken on 42% in the year to date, trouncing its rivals and the wider London market.
Branding the earnings a ‘good performance’, Numis upgraded the group to ‘add’ from ‘buy’. The broker pointed out that Berkeley’s plans to return about £1.7 billion in cash to shareholders over the next decade – through retained income, rather than the reduction of net asset value – would add about 150p per share to its target price of £15.
Mike Bessell, analyst at Evolution Securities, lauded the results as ‘another strong set of numbers’ in a note titled ‘London Pride’, saying the broker continued to see ‘considerable value in the stock’.
But Oriel Securities analyst Anthony Codling reiterated a ‘sell’ recommendation for Berkeley, warning that the valuation suggested downside risks.
He also pointed to a comment by Rob Perrins, managing director, that bringing forward the date of the first dividend was ‘less likely’ due to a sustained level of investment in land and work in progress. This, Codling said, ‘allows investors to take profits and return as the likelihood of the dividend increases’.
The results were the latest in a batch highlighting the resilience of the London market, coming only a day after West End-focused real estate investment trust (Reit) Shaftesbury (SHB.L) reported rising rental income and asset values.
Meanwhile, in a sector note, Jefferies said it saw a ‘strengthening case’ for Reits, noting that portfolios of long-leased prime London offices and out-of-town retail, in addition to access to capital, inferred a competitive edge.
‘Boards have, however, put too much risk into “Reit wrappers” dissipating these attributes,’ the broker added. ‘Reits are now following our counsel and cutting debt, development and overheads, while focusing on income growth as capital values pancake.’
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