Investment Column: Barratt is a hold, despite fears of housing crash

Despite predictions of the housing market crashing all around it, Barratt Developments yesterday followed other housebuilders in issuing a very positive trading update.

Despite predictions of the housing market crashing all around it, Barratt Developments yesterday followed other housebuilders in issuing a very positive trading update.

The country's highest volume housebuilder sold about 14,000 homes for the year ended 30 June. Selling prices were up 8 per cent to £165,000.

David Pretty, its chief executive, said that four interest rate rises since November last year have managed to put the market on a "sensible" footing. Over the next 12 months, he expects house price inflation to be more-or-less in line with earnings growth, at 4 or 5 per cent.

He and his peers do not want to see another further rate increases but the Bank of England is not likely to heed this advice.

For this financial year, Barratt's forward sales are up 10 per cent at £880m - a record for the company and a demonstration that it is in a very comfortable position, whatever the housing market does. Remember, too, that Barratt's gearing is a mere 14 per cent and it has a cash pile of nearly £100m.

The company expects to maintain margins, at around 15.5 per cent, this year while seeing volume increases to about 15,000 completions.

The City is expecting profits to rise from £289m for the year to June 2004 to some £360m, which is pretty healthy progress. Housing supply continues to be unable to meet demand and it is this, along with the fact that interest rates are still relatively low, which should make the chances of a housing market crash, or correction, quite remote. At 569.5p, the shares are worth holding.

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