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Market snapshot: Berkeley Group Trading Statement

Published 06/09/2024, 08:43
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Investors have been skittish in the lead up to the non-farm payrolls report, and the day of reckoning has finally arrived.

Surrounding economic data has given mixed signals, with private payrolls numbers yesterday showing the weakest growth for over three years, whereas weekly unemployment claims fell from the previous week. As such, there is extra emphasis as if it were needed on today’s employment report, which will walk the fine line between whether the fabled soft landing is on track, or whether the Federal Reserve has missed the boat with a potential recession in sight. Nerves will be further tested with memories of the reaction to last month’s report, which prompted a bout of market turbulence.

In the meantime, the main indices largely hugged the flatline again although today could be of rather more significance. In the year to date, the Dow Jones is ahead by 8.1%. the Nasdaq by 14.1% and the benchmark S&P500 by 15.4%.

Asian markets were unable to make much progress either overnight, and in the UK a similar sense of caution prevailed at the open. Ahead of the non-farms report at lunchtime, there is unlikely to be any market positioning of note as traders brace for what could be a testing afternoon session.

Further revelations of the Cathay Pacific engine fire by the European safety agency weighed lightly on Rolls-Royce (LON:RR) shares in early trade, while both the banks and airlines also came under some pressure. The dip in the primary index leaves the FTSE100 ahead by 6.2% so far this year, and drifting further to be almost 3% away from May’s record high which was looking increasingly achievable until the most recent bout of investor tension.

Berkeley Group trading statement

In a brief trading update, Berkeley (LON:BKGH) echoed the themes of its peers more recently, namely that there are some signs of recovery emerging in the housebuilding sector, but equally there remains some repair work to be done.

Trading is stable in the group’s new financial year, leading to the pre-tax profit guidance of £525 million being maintained, 90% of which is already secured. Operating margin is expected to exceed the stated range of between 17.5% and 19.5%. while net cash has decreased from £532 million to £450 million, largely due to shareholder returns. The special dividend which should be agreed today takes the projected yield to 4.8%, a level which could entice some buying interest from income-seeking investors.

Berkeley’s focus on the more upmarket end of the housing spectrum has proved to be something of a shield against what has been a difficult few years for housebuilders. In addition, the group has stated that it is ready to invest in new opportunities once conditions for growth are reestablished, while keeping a tight grip on expenditure more generally and with build cost inflation now having fallen to negligible levels.

However, as yet the return to the top of the cycle remains some way off, with the sector having faced a multitude of challenges in the wider economy such as generally stubborn inflation and understandably less buying interest. The recently announced Competition and Markets Authority probe into potential price collusion was an unwelcome development which overhangs a number of housebuilders, including Berkeley, although the separate investigation into poor build quality was shelved. More positively, reforms to the planning system if achieved should bolster the sector as a whole, and perhaps Berkeley in particular.

The shares have lost some ground recently, although over the last year the price has risen by 24.5%, as compared to a gain of 11% for the wider FTSE100. Investors for the most part currently have a wait and see attitude ahead of any sustained economic recovery, and the market consensus of Berkeley as a hold is typical of this generally cautious approach.

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