London-focused property firm Berkeley beat analyst expectations today, reporting a 15 per cent jump in profits to £934.9 million for the year to April 30.
However, the housebuilder warned that profitability would fall by around a 30 per cent in its next financial year, prompting shares to slide 4 per cent in early trading.
Group chief executive Rob Perrins said Brexit-related headwinds and uncertainty were plaguing the London housing market, and admitted the firm has been ‘cautious’ in its investments as a result.
Oval Gas works by Berkeley, which has today flagged weakness in the London property market
He said: ‘At present, political and economic uncertainty, in part due to the uncertainty around Brexit, weigh on sentiment but do present opportunities for customers who can look beyond this short-term volatility.
Berkeley’s South Quay Plaza in London
‘Berkeley, with its unrivalled financial strength, land position and expertise is able to look past this prevailing uncertainty with measured confidence but, like all responsible businesses, is cautious in its investment in this environment, and this will determine the speed with which it delivers the value from its assets in the medium-term.’
The firm, which primarily operates near the top of the London property market, sold 3,536 homes over the year – down 9 per cent – but saw its average selling price rise 6 per cent to £715,000.
It said its profitability in 2017/18 reflected a ‘peak’ due to the sites it acquired between 2010 and 2013, when the market was particularly buoyant.
Commenting on today’s caution, Tony Pidgley, Berkeley’s chairman, said: ‘It is telling that some funders and builders are choosing to exit the [London] market when faced with the degree of risk and regulation that now confronts development in the capital where macro and political uncertainty, including Brexit, are leading to this caution.
‘This is a great shame as London is a fantastic world-class city with unique attributes that will last long beyond the current hiatus which is only exacerbating the well documented under-supply.’
While tackling more subdued markets in London and the South East, the firm’s building costs have also risen by between 4 and 5 per cent thanks to an increase in labour and materials.
‘Second-guessing Tony Pidgley, chairman of Berkeley Homes, is usually unwise and investors appear to be taking his forecast that profits have peaked at the house builder more seriously today than when he first made it back in December,’ said Russ Mould, AJ Bell investment director.
‘Berkeley’s focus on high-end properties in the South East means it is far from typical within its peer group – just 4% sales (157 houses) were supported by the Help-to-Buy scheme – but this is a less-than-ideal start to a big month for results from house builders, whose shares have already been coming under pressure.’
‘Attention will now switch toward the scheduled results statements and trading updates due from Persimmon on 5 July, Barratt on 11 July and Taylor Wimpey on 31 July.’