Market news and a solid update from housebuilder Berkeley.

Market News

US equity markets closed lower last night – S&P 500 (-0.3%); Nasdaq (-0.9%) – weighed by chip stocks amid weakness in Apple shares. This morning in Asia, markets were also down: Nikkei 225 (-1.2%); Hang Seng (closed); Shanghai Composite (-0.2%). The yuan slid, approaching its lowest level on record, after a weaker PBOC fixing. European markets opened higher after a run of seven straight down-days. The FTSE 100 is currently trading 0.1% higher at 7,444.

Lorie Logan said skipping an interest rate hike at the upcoming meeting may be appropriate, though she also signalled rates may have to rise further to get inflation back to 2%. US monetary policy is “in a good place,” but officials will need to parse data to decide on how to proceed on rates, John Williams told Bloomberg. Dollar strength continued, the 10-year Treasury currently yields 4.22%, while gold nudged up to $1,925 an ounce.

German CPI inflation grew 6.1% year-on-year in August, in line with consensus. The 10-year Bund yield is currently 2.61%.

UK job recruiters reported the fastest slump in job demand in three years. The REC’s measure of permanent staff placements dropped to 38.9 in August, the 11th straight decline and the steepest since June 2020. Sterling trades at $1.2483 and €1.1647.

Brent Crude drifted back below $90 a barrel. Chevron LNG workers in Australia will begin partial strikes today after the company and unions failed to reach an agreement on key terms. The Gorgon and Wheatstone facilities accounted for about 7% of global LNG supply in 2022. European gas prices jumped as much as 11%.

Source: Bloomberg

Company News

Berkeley Group has today released a short but solid trading update in which it reiterates its full-year guidance and plans for shareholder returns. In response, the shares are little changed this morning.

Berkeley is a residential housing developer focused on London and South-East England, the country’s most under-supplied housing market, with a broad spread of developments ranging from traditional family homes in the countryside to city apartments and mixed-use schemes. The company delivers over 10% of the capital’s new private and affordable homes. The group’s strategy has been developed for a cyclical market, with a focus on financial discipline and adding value through its development expertise, especially in large-scale, complex sites. Around half of purchasers of Berkeley’s properties are from overseas.

The group has a target to achieve a 15% pre-tax return on equity from 1 May 2019 to 30 April 2025 and a long-term plan for shareholder returns, based upon an ongoing annual return of £283m planned through to September 2025, which can be made through either dividends or share buybacks.

In today’s update, which covers the period from 1 May to 31 August, the company has re-affirmed its earnings guidance to deliver pre-tax profits of at least £1.05bn across the current and next financial years; likely to be weighted slightly to FY2024. Profits for the current year are expected to be split broadly evenly between the first and second half.

Supported by a strong opening forward sales position, the group has over 90% of FY April 2024 revenue exchanged and anticipates cash due on forward sales to be around £2bn at 31 October 2023. The company remains on track to be working capital neutral over the course of this and the next financial year.

In terms of the sales market, the statement highlights that enquiries have stayed at similar levels over the last four months, but the value of underlying private sales reservations is some 35% below last year’s rate, reflecting the elevated macro-economic and political volatility. Pricing remains resilient and above the group’s business plan levels, due to the constrained supply of both new-build and second-hand homes to the market, while cancellation rates are stable.

Build cost inflation is at negligible levels when measured across the group’s portfolio and Berkeley is working with its supply chain to ensure delivery programmes are met. 

The group highlights regulatory obstacles at a time of considerable uncertainty for the UK economy with persistent high inflation and interest rates continuing to deter investment into brownfield regeneration and the wider housebuilding sector. As a result, the group has not acquired any land in the period and will only invest very selectively in new opportunities.

The balance sheet remains strong, with net cash at 31 October 2023 currently expected to be around £325m, subject to any further share buybacks in the intervening period.

As announced last month, a dividend of £63.1m (59.03p per share) will be paid on 8 September with the remainder of the £141.3m return for the six months ending 30 September 2023 having already been satisfied through share buybacks. The next £282.7m (266p) shareholder return will be provided by 30 September 2024 through a combination of dividends and share buybacks, with at least 66p of the annual return made via dividends.

The shares currently trade on 1.2x forward NTA (NAV), a deserved premium to the sector.

Source: Bloomberg