Berkeley Group's 'What Brexit?' forecast upgrade

Berkeley’s long-standing five-year profit guidance of at least £3bn pounds has come in handy this morning.

Berkeley’s long-standing five-year profit guidance of at least £3bn pounds has come in handy this morning.

The probability that the goal would be exceeded was always fair at least, given Berkeley’s position at the front of the trend of land banking, in the context of British housing market economics. The group has duly raised its five-year profit before tax goal after a faster than expected 36% rise in interim profits. This helps account for the stock posting its biggest one-day rise this year, up as much as 10%.

The land bank issue was of course also one of the key reasons that shares of large housebuilders like Berkeley sold-off sharply at the end of October and into last month’s Budget. The statement confirmed Westminster’s hardening attitude over the hoarding of land by homebuilders. Chancellor of the Exchequer Philip Hammond’s announcement of a review into the reasons for “unused permissions”, hand in hand with measures more tilted to regional and smaller builders, suggested darkening prospects for their large FTSE rivals.

Still, the top of the sector has recouped much of those losses in the weeks that followed, on a more discriminate assessment of the potential impact of the compulsory purchases which Hammond warned could be applied. Additionally, the distant prospect of regulation around unused permissions could still leave hoarders like Berkeley well-positioned relative to those that have reduced stored inventory, like Barratt.

Overall, Berkeley now seems less inclined to accentuate the negatives than it was at its last update in September. To be sure, the CEO does repeat cautions that “Brexit uncertainty and concerns over growth and inflation, coupled with the changes to [stamp duty] and mortgage interest deductibility, continue to impact the market.” However, rebounding optimism in the market about the outlook has clearly found its way back to Cobham, where Berkeley now remarks on the continuation of generally benign economic conditions in its specific price bracket, keeping mortgage availability firm and currency movements “favourable”.

This year has shown that investors do not deem Berkeley to be immune from coming economic realities. But business strength in the first half has pushed forward the date when the group may face them.

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