Barratt doubles annual profits on back of Help to Buy scheme
Housebuilder talks of return to normal in the housing market as profits rise to £390m
Barratt Developments has become the latest housebuilder to talk of a return to normality in the market, after more than doubling annual profits on the back of the government's Help to Buy initiative.
The mortgage-subsidy scheme has given housebuilders a huge boost since it was introduced in April 2013. Barratt's profits soared to £390.6m in the year to 30 June. The private average selling price climbed 12.9% to £241,600, partly reflecting Barratt's move away from building flats to larger family homes since the downturn. The company completed 14,838 houses – 8.6% more than in the previous year (13,600).
The builder, which owns David Wilson Homes, expects to construct 15,700 homes in the current year, a slightly slower rate of increase. The chief executive, Mark Clare, said:
That's a good, solid, continued growth rate.
Help to Buy, which was due to end in 2016, has been extended to 2020. He added:
Following the launch of Help to Buy, sales rates over the summer period last year were exceptionally strong. This year we have seen a return to more normal seasonal trends.
His comments echoed those made by the Redrow boss Steve Morgan that "things are settling down to a more sustainable pattern". The summer months tend to be quieter as people go on holiday, but last year the Help to Buy scheme ramped up demand for new homes. The scheme accounted for 30% of Barratt's sales last year, compared with 35% for Redrow. Clare said sales were at similar levels now.
A key house price survey from Halifax showed the market is cooling. Richard Hunter, head of equities at Hargreaves Lansdown, said:
It could be argued that the company is simply making hay while the sun shines, despite the fact that Barratt's strategy of investing in land, particularly during the financial crisis, is now reaping rewards as the group reports a net cash position.
Barratt has bought £3.8bn of land since re-entering the land market in 2009. Like other builders who have warned of a shortage of bricks and bricklayers, Barratt said the increase in building across the industry had strained its supply chain.
Barratt intends to return £400m to shareholders by 2017, with the first payment of £100m in November 2015 – earlier than expected. Including dividend payments, it will return £950m of cash to investors.
Analysts at Bank of America/Merrill Lynch said:
Our earnings per share [EPS] forecasts imply the fastest EPS growth in the sector over the medium term.
They added that Barratt was overachieving on its targets.
However, Barratt's share price has fallen by 18% over the past six months, compared with a 2% rise for the wider FTSE 100 index, and the company has recently dropped out of the blue-chip index again.
Other housebuilders have also underperformed the market amid expectations of higher UK interest rates.