Barratt Developments share price in focus following Bank of England rate rise
The market will turn its focus to Barratt Developments’ trading update next Thursday to see how soaring mortgage rates and a tumultuous period for the property sector is impacting UK house building companies.
The housebuilder’s shares have fallen by around a tenth over the past 12 months and more than half from their pre-pandemic levels, as investors worried about high interest rates and a tight buyer market have shied away from pumping money into the firm.
Last month, the Bank of England hiked interest rates by 0.5 per cent to cool inflation, however the move sent high street lenders to increase the costs of their mortgage deals, making it difficult for homeowners to afford.
Chief executive of Barratt David Thomas started the year with plans to build between 18,400 and 18,000 homes, however following the fall out of September’s mini budget this figure was later lowered to 16,500 and 17,000 for the year.
“Lower volumes, flatter pricing and higher costs mean analysts are looking for a drop in adjusted pre-tax profit to £865m from £1,055m a year ago,” Russ Mould, investment director at AJ Bell, said.
“Barratt is unlikely to offer any forecasts for fiscal 2024 until the result in September, but should it do so, the current consensus forecast is for a further drop in pre-tax income down to £550m,” he added.
Mould said that Barratt has also reduced its land buying and also proposed the sale of 604 homes to the Lloyds-owned Citra Living for £168m, as it seeks to “husband cash and presumably prepare for a downturn”.
“The sale will only go through in the new fiscal year, but the builder still expects to end June 2023 with a net cash pile of some £900m, down from £1.1bn a year ago.”
He continues: “There is unlikely to be any talk of dividends at this stage – that would be more normal alongside the August interims – but analysts are currently looking for a full-year payment of 33p a share, down from 36.9p a year ago.”
“A further reduction to 23p is the consensus forecast for fiscal 2024, but Barratt is also still running a £200m share buyback and as of late April it had spent £154m of that.”
Last week figures from S&P Global and the Chartered Institute of Procurement and Supply’s (CIPS) purchasing managers’ index (PMI) for the UK construction industry, further solidified the impact of aggressive interest rate hikes on the sector.
The residential work index also fell to 39.6 in June from 42.7 in May.
Damning reports about the current state of the housing market have hindered shares in fellow FSTE 100 and 250 companies.