2nd UPDATE: Barratt Shares Higher As FY Profit Rises

14th Jul 2010 09:02

(Rewrites, adds analyst comment, detail.) By Simon Zekaria Of DOW JONES NEWSWIRES LONDON (Dow Jones)--Shares in Barratt Developments PLC (BDEV.LN) rose sharply Wednesday after the the U.K.'s largest house builder by volume said its full-year operating profit will more than double and that the group is well-positioned for further margin growth in a challenging market. The Royal Institution of Chartered Surveyors cautioned Tuesday that, while U.K. house prices rose in June, they did so at a sharply slower pace as the number of houses on the market rose while buyer inquiries fell. But Barratt Chief Executive Mark Clare said that "improved operating performance, combined with our success in agreeing terms on higher margin land means that the group is well positioned to secure further margin growth." Operating profit for the year to June 30 is expected to be at least GBP85 million, up from GBP34.2 million a year ago, which is ahead of expectations, the company said. It also said group operating margin for the year will be at least 4%, up from 1.5%. At the peak of the housing boom Barratt achieved margins of 15% to 17%. At 0750 GMT, Barratt shares were up 4 pence, or 3.4%, to 109 pence, in a higher London market. They have fallen 11.4% in the past three months on fears of a renewed slump in home buyers' confidence amid U.K. government spending cuts. Panmure Gordon analyst Mark Hughes said the company is in good shape, with its shares significantly undervalued. "Its cash performance is better-than-expected, it has no major gearing concerns, it has built up a decent order book and it is trading well. It has always been a fantastic sales machine. Forecasts should move up." U.K. house builders have just come out of one of the worst downturns in decades as the lack of mortgage finance curbed demand for housing.The company, like fellow U.K. housebuilders, is under pressure to start building on new and cheaply-bought land, to raise recession-battered margins. The company said it completed 11,377 home builds in the year, in line with expectations. The average selling price rose by about 11% to roughly GBP174,000, gaining around 18% in the second half. Barratt is targeting total completions in fiscal year 2011 to be 5% to 10% higher than the previous year. During the year the group opened 106 sites and completed 143 sites, but the average number of active sites for the year fell to 360 from 436. Net debt at June 30 fell to around GBP375 million from GBP1.28 billion at the same time last year. Barratt said the figure is below previous guidance on lower cash expenditure due to deferred land payments and cash management. -By Simon Zekaria, Dow Jones Newswires; +44 20 7842 9410; [email protected] (END) Dow Jones Newswires July 14, 2010 04:02 ET (08:02 GMT)