Barratt profits slump on weak demand, mortgage rates

4th Sep 2024 07:04

(Sharecast News) - House builder Barratt reported a 75% plunge in annual profit, citing cost-of-living pressures, much higher mortgage rates and limited consumer confidence.

The company on Wednesday said pre-tax profit slumped to £170.5m from £705m, with completions down 18.6% to 14,000, although this was at the upper end of expectations

On an adjusted basis, pre-tax profit fell 56.5% to £385m for the year to June 30, compared with average forecasts of £365m. The annual dividend was more than halved to 16.2p a share.

"Given the profile of land acquisition over the past 24 months, we expect to see a short-term reduction in average outlets which will result in the delivery of 13,000 to 13,500 homes in full-year 2025," Barratt said.

"Whilst demand continues to be sensitive to mortgage affordability, and reduced land buying activity during the past two years has had a near-term impact on the number of outlets we are operating from, we are well-positioned to meet the strong underlying demand for new homes of all tenures in the UK."

The company tried to sound upbeat about plans by the new Labour government to changing planning laws in an effort to stimulate the market and meet demand.

"While the housing market remains subdued due to affordability constraints, we welcome the government's proposed reforms of the planning system as key to both unlocking economic growth and tackling the chronic undersupply of new homes," Barratt said.

The company also said it was moving ahead with its £2.5bn takeover of rival Redrow, despite concerns from the UK's competition regulator, which has said the deal could disadvantage homebuyers in the area around a town in Shropshire.

Barratt said it was working with the Competition and Markets Authority to get the green light.

Richard Hunter, head of markets at Interactive Investor said Barratt "has to hope" that the grim results mark an inflection point for the group.

"It has confidence in its future prospects, which should be given fresh impetus by the acquisition of Redrow, a deal which is now all but over the line," he said.

"The acquisition is a clear statement of intent, which should come with annual cost synergies of £90m by year three and a combined land pipeline of over 92000 plots, which would give the new entity significant firepower as and when economic constraints abate."

"When the deal is finally agreed, Barratts will be in a position to assess capital requirements for the enlarged group with an eye towards current legacy costs as well as its desire to be active in the land market. Complementary geographical footprints add a further intriguing dimension to the deal."

Reporting by Frank Prenesti for Sharecast.com