Berkeley slides on property downturn

BERKELEY GROUP, the UK's second-largest housebuilder, saw its share price dip by 3 per cent yesterday as it predicted a downturn in the property market.

Reporting a below-forecast 20 per cent rise in half-year pre-tax profit to pounds 52.5m, Graham Roper, group chairman, said demand from Asian buyers and speculators had dried up in London. "The slowdown, which started in the spring, has continued. Volumes have dropped, and there is pressure on sale prices."

Berkeley, which estimates that land prices in the capital have fallen by about 20 per cent, said it had cut its land purchases by up to 75 per cent on last year. With pounds 14m in cash and pounds 247m in unused credit facilities, Mr Roper believes Berkeley will take advantage of "the buying opportunities which will become available during this less certain period".

Berkeley's slide from a 12-month high of 776p in May to yesterday's three- year low of 410p is a familiar story in a sector in which City confidence has collapsed. And Berkeley is viewed as a company with a higher-than- average exposure to the volatile London housing market.

Jonathan Timms, analyst at Charterhouse Tilney, said the company had put in another good performance, but the market was against it. But if January and February sales figures are positive, Berkeley will start to look cheap against assets. The company is capitalised at pounds 520m, against over pounds 600m in assets. "Logically, a housing company with a high asset turnover should not be valued below net asset value," said Mr Timms.

However, another analyst said Berkeley's figures showed an unexplained sale that reaped an pounds 11m profit. "With this stripped out, there is actually a profit decline. Berkeley's only problem in the past has been the mismanagement of expectations, leading the market to believe it could earn 25 per cent more than is possible in the long term. We are beginning to see what Berkeley's sustainable earnings really are, and this has been reflected in the recent battering of the share price."