Bottom Line: Berkeley justifies faith

BERKELEY'S policy of keeping its land bank to a bare minimum was vindicated by interim figures showing a sharp rise in the gross margin from 16.7 to 19 per cent.

With no overpriced land disturbing the cost side of the equation, even the modest rise in house prices so far this year has done wonders for the builder's return on sales.

The half-time figures were at the top of expectations, prompting an increase in profit forecasts for the full year from about pounds 26m to pounds 28m, assuming a jump in completions from 1,200 to 1,500.

Looking ahead, profits are expected to rise to pounds 35m by April 1995 and pounds 43m the following year.

Those optimistic growth projections place great faith in Berkeley's buying skills; with house price inflation expected to track retail prices at 2 or 3 per cent a year, recent rises in land prices look worryingly out of kilter with reality.

According to Tony Pidgeley, founder and managing director, the niche sites in which the company specialises march to a different beat from the big plots the volume builders have been bidding for so enthusiastically. With some land changing hands for up to 40 per cent more than a year ago, shareholders must hope he is right.

Those who stumped up for the most recent pounds 44m rights issue in the spring have nothing to complain about. The price of the shares they bought then has risen from 295p to yesterday's close of 480p. They were also rewarded with a 15 per cent rise in the interim dividend to 1.9p.

If Berkeley meets analysts' expectations, its prospective p/e multiple will fall from 20 this year to 16 in 1995 and 13 the following year. That rate of growth and an unmatched record mean that Berkeley, unlike many of its peers, justifies the premium.