Barratt reports strong start to another steady year

Barratt’s “strong start to the financial year” is getting a 'fair enough, but no cigar’ response from the market.

Development pace steady

The stock has been down as much as 1.5% on Wednesday, before rising to almost flat. There is indeed nothing disquieting in the group’s statement about 19 weeks of trading ending 12^th November. It’s just that concerns, about the lack of a ramp in homebuilding— notably seen when the group reported finals—are lingering. The pace doesn’t appear to have picked up much. Having made just 76 more homes in the last financial year than the one before, fresh info on completions was absent from Wednesday’s statement. What we can glean by way of hints doesn’t suggest much of a lift. The group had 373 ‘active outlets’ on 12^th November, compared to 370 in a comparable period in 2016.

Banging the drum

The lack of pace obviously has social, political and most importantly business implications for Britain’s biggest housebuilder, which the group recognises itself. Senior Barratt executives have been banging the drum all year about the constricting effect of Britain’s consents regime on developers’ ability to meet demand. Barratt says just a tweak to regulations on site yield in outline consents, where it is clear slightly higher density would cause no harm, could lift output by a not inconsiderable amount. Westminster seems sympathetic. But for now, the government seems focused on extending Help to Buy, an imperfect solution to the housing shortage. Barratt and other developers point out they have few other options but to continue at their current pace. Barratt completion growth looks to be about as brisk as circumstances allow.

Expect “modest growth”

Aside from that, there’s no indication in Barratt’s statement that its 20% gross margin hurdle rate and 25% ROCE are becoming more difficult to achieve. Consequently, the group is on track to achieve “modest growth”, and dividend rises in-line with market forecasts, though not much more. These are good enough reason to reduce the stock further after an advance of almost 50% for the year by late October.