Barratt Developments hoists sales and profit expectations after strong third quarter

13th May 2015 07:11

Thanks to strong consumer demand for new build houses and expectations of a supportive government policy post-election, housebuilder Barratt Developments has raised its expectations for housing completions and profits for the full year.Helped also by a more supportive mortgage market and the Help to Buy scheme, the net number of house reservations has increased to 289 per week in the 19 weeks since the start of the year, compared to the 280 in the same period last year.With the strong sales backdrop, Barratt said it had been able to drive a higher level of reservations from its older, lower-margin sites.As a result, it now expect housing completions for the full year to be ahead of previous guidance at roughly 16,100, up 8.5% on the same period last year.Excluding joint ventures (JVs), the company still expects completions to be slightly higher at around 15,250, with the benefit to profit in the year from these 250 incremental units, being roughly £4m."Our investment in circa £4.5bn of approved land for new housing since 2009 continues to deliver results," said chief executive Mark Clare.Additional operating profits on the group sales and the JVs are respectively £4.5m, making an extra £9m in total with analysts noting that the estimated margin on the group additional sales around 8%, versus group average of 16%.Clare was also able to boast of a forward order book, up 17.9% on the prior year at a value of £2.59bn, being the highest level ever achieved by the group. He added: "We are on track to deliver a further significant step up in our financial performance in FY15, making good progress towards achieving our FY17 targets of a gross margin of at least 20% and return on capital employed of at least 25%."After the Conservative party's general election win, Barratt expects a supportive environment in terms of a continuation of the Help to Buy (Equity Loan) Scheme and further improvements to the planning system.Among the broker upgrades that ensued, Numis increased its 2015 PBT estimate from £551m to £560m, with EPS from 44.2p to 44.9p to reflect the additional £5m profit from JV's and also £4m from the additional completions, assuming larger margins as the group has accelerated the sale of older lower margin units.For 2016 Numis analysts upped PBT marginally from £655m to £660m and EPS from 53.2p to 53.6p.Shore Capital held back somewhat on 2016 as it was "not clear" whether a similar pick-up in sales was likely in following years, noting that the unit sales increase came mainly from a faster run down of "older, lower margin, legacy sites not core sites and may have arisen through a deliberate policy to close out these sites more rapidly".Analyst Robin Hardy also noted that although forward sales on the face of it look very strong, the underlying picture was less positive that the headline might suggest, with private sales up 3%, affordable/social housing by 15% from seasonal effects and JVs up 123% due to the timing of recent, larger development releases.