Barratt Developments pledges £1bn cash return - UPDATE

10th Sep 2014 07:06

Along with an impressive set of final results, housebuilder Barratt Developments reported current trading had returned to more seasonal trends and pledged to return almost £1bn to shareholders over the next three years via special dividends.Results for the year to end-June, which were in-line with consensus forecasts having been well flagged in a recent pre-close update, were up 21.1% to £3.1bn, with pre-tax profits more than doubled to £390.6m and earnings up fourfold to 31.2p per share.Private average selling price increased by 12.9% to £241,600 as the number of housing completions rose 8.6% to 14,838.Chief executive Mark Clare attributed the "significant improvement in performance" to the £3.8bn the compay had ploughed into land investment since mid-2009, together with the recovering market and an increased oeprational focus on efficiency, design and build quality to provide a competitive edge over rivals.He added that although the housing market had come down from the inflated high of the Help to Buy scheme, the company was extremely optimistic about achieving a "significant increase" in performance in the current financial year thanks to this new operational focus.This view was bolstered by total forward sales as at 7 September up 22.3% at £1.5bn and private forward sales up 30% to £1.15bn, with improvements in selling prices arising from both underlying price inflation and changes in sales mix."Our disciplined approach will support a further significant increase in performance this year and we are now targeting a return on capital of at least 25% by full year 2017," he said, adding that this would be linked to executive bonus pay.Coupled with Barratt's strong projected cash generation, management surprised with the announcemet that its ordinary dividend programme will be supplemented by a special cash payment programme for the next three years, with a first special payment of £100m in November 2015, with £125m in November 2016 and £175m in November 2017.Said Clare: "Our special cash payment programme for the next three years combined with our ordinary dividend, is expected to return around £950m of cash to our shareholders."The balance sheet showed net cash of £73.1m, having moved from net debt of £322.6m three years before, although broker Shore Capital pointed out that average debt was still much higher at around £350m and there is £750m of land creditors on the balance sheet.ShoreCap analyst Robin Hardy said the capital return "must be seen as a positive step" and pushes the company's income up to a level similar to the rival higher-yielding housebuilders of Persimmon, Berkeley and Taylor Wimpey.He calculated that the November 2017 total dividend will give a yield of around 9.5%, with 2015 seeing a total yield of 6.5%. Broker Liberum pointed out that the cash return was equivalent to 27% of the company's market cap and that the share price's 13% discount to sector "looks unwarranted given newly announced return strategy".Panmure Gordon took confidence from the strong current trading to make a small upgrade to full year assumptions, with EPS moving from 40.6p to 42.5p.Shares in Barratt were up 0.5% to 368.9p at 10:15 on Wednesday.