Berkeley stays a step ahead: The Investment Column

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The Independent Online
Tony Pidgley, chief executive of upmarket housebuilder Berkeley, has built up a deserved reputation for always being one step ahead of the rest of the pack.

He famously went liquid at the top of the housing market boom in 1988. During the subsequent recession Berkeley alone among housebuilders kept profits and earnings moving forward.

More recently, Mr Pidgley has touted the virtues of city centre living while rivals vie with each other to pay fancy prices for volume greenfield developments.

His latest idea was to plan ahead for the general election. Mr Pidgley assumes housebuyers will, in effect, go on strike in the run-up to polling day, equivalent to pounds 60m of Berkeley's sales.

In response, Mr Pidgley brought forward sales into the first half by beefing up Berkeley's marketing effort. This included spending about pounds 500,000 on mock show homes, which are dismantled later once the transaction is completed.

The benefits of this forward planning are there for all to see. Pre-tax profits rose by 58 per cent to a better-than-expected pounds 30.1m on sales up from pounds 146m to pounds 203m in the six months to October.

Earnings per share increased by a third to 21.1p while an interim dividend of 2.5p (2.2p) was declared.

Unit sales rose from 702 to 946 while the average selling price of a house was pounds 210,000 (pounds 196,000).

Berkeley has benefited more than most from its emphasis on executive homes in London and the South-east. But more than half of sales in the first half were outside the Capital where the first signs of a pick-up in prices is now being detected.

The strong performance at the interim stage has laid the foundations for another set of robust full-year results and brokers were busy upgrading their profit forecasts on these figures. NatWest raised its 1997 estimates by pounds 4.5m to pounds 59m, and by pounds 4m to pounds 65m for 1998.

That puts the shares, up 21p to 632.5p, on a price/earnings ratio of 15 falling to less than 14, making them a firm hold.