FTSE 100 Shares: Housebuilder Barratt’s Reservations Slump As It Indicates Possible Market Recovery
Housebuilder Barratt Developments has announced a large slump in its order book for the first half of its fiscal year.
However, the FTSE 100 company rose 2% in value following the news as results indicated a possible recovery in the UK homes market. It was last trading at 470p per share.
Revenues And Profits Rise
Total completions at Barratt rose to 8,626 homes between July and December, it said. This was up 6.9% from the 8,067 properties the business recorded a year earlier.
This drove revenues 23.9% higher to £2.78 billion. And adjusted pre-tax profit increased 15.9% year on year to £521.5 million.
However, adjusted gross margins at the business dropped 170 basis points year on year to 23.3%. This was due to higher build cost inflation which hit 10% during the first half. Greater sales in the lower-margin London market also pushed margins lower.
Barratt’s net cash meanwhile dropped to £969.1 million from £1.13 billion. This encouraged it to cut the interim dividend to 10.2p per share from 11.2p last year.
Forward Sales Plummet
Weakening homebuyer demand has caused forward sales to fall off a cliff in recent months.
Barratt’s forward sales clocked in at 10,854 homes as of 29 January, it said. This was down significantly from 15,736 a year earlier.
Meanwhile, the value of the firm’s order book slumped to £2.67 billion from £4.1 billion over the period.
Signs Of Recovery?
But Barratt declared that trading conditions have been more favourable in recent weeks.
It said that “reservations have shown a modest uplift since the start of January, helped by the tempering in both future interest rate and energy cost expectations, as well as the introduction of more competitive mortgage rates.”
Net private reservations per active outlet per average week improved to 0.49 between 1 January and 29 January, it said.
This was down significantly from a rate of 0.9 recorded in the same 2022 period. However, it breaks a run of sequential slowdowns since the start of the fiscal year that saw net private reservations fall to just 0.3 per outlet per week between 9 October and December 31.
The housebuilder added that “the sustainability of this recovery however remains uncertain, notably with respect to the challenges still faced by first time buyers.”
“Strong Operating Performance”
Chief executive David Thomas commented that the business had “delivered a strong operating performance for the six months.” He said that “this was possible because of our significant forward order book at 30 June 2022 and the tremendous efforts of our employees, sub-contractors and supply chain partners.”
However, he said that the challenging economic landscape and weakening consumer confidence fed through to lower reservations rates for future sales. Reservations were particularly affected between October and December, he noted.
Thomas added that “whilst we have seen some early signs of improvement in current trading during January, we will need to see continued momentum over the coming months before we can be confident that these challenging trading conditions are easing.”
What The City Said
Aarin Chiekrie, equity analyst at Hargreaves Lansdown, said that “the mortgage-rate environment remains challenging for home buyers” and that the sharp fall in Barratt’s reservations reflects stretched buyer affordability and reduced market confidence.
He added that “while the outlook for the second half of Barratt’s financial year remains uncertain, we’re cautiously optimistic for the group’s prospects in the long run.”
He noted that “recession fears have put housebuilders in a tricky spot” but said that Barratt’s significant net cash “gives it plenty of breathing room, even if the housing market deteriorates further.”