More on Berkeley
Berkeley: FY2006 results
Property developer Berkeley reported a 34.6% growth in NAV per share in the year to April 2006. NAV per share rose from 518p last year to 697p.
Pre-tax profit rose to £165.1m (on continuing businesses) compared to £155.5m last year. Lower operating costs (down £5m) and higher interest income (up £8.7m) were largely responsible for the growth.
Sales did grow (£917.9m v £794.5m last year) on the back of higher volumes (3001 units v 2,292 last year) but average selling prices fell to £293,000 from £309,000 last year and gross margins contracted from 28.8% to 25.2%.
Forward sales at the year end also fell by £105.1m to £581.9m.
Despite the company’s best efforts to put on a brave face it is fairly clear that the core business has experienced significant weakness during the year. Sales volumes have increased largely due to lower prices, which in turn mean lower margins. An increase of £123.4m in sales has translated to only a £2.7m increase in gross profits.
The real bottom line growth has come from the cost savings and increased interest income detailed above. While these are always welcome, the fundamental problem is that the core business has weakened – at it is to this that we look to for sustainable long term growth.
The weakening of the housing market has been happening for some time and thus the relatively poor performance of this company’s core business should come as no surprise.
The company has issued units under a scheme of arrangement – described fully in our previous piece.
The next payment (£2 per share) is due in December 2006 with further payments scheduled for December 2008 (£2) and December 2010 (£3).
The company says it is on track to make the next payment, due in December.
The share trades at 1241p, on a prospective PE (2007 earnings) of 13.1x, which is high for the sector but this is due to the market incorporating the expected payments into the price.
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