Well-managed Barratt is a home for the long term

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The Independent Online

It bears repeating. This is not the early Nineties, when double-digit interest rates combined with a recession to cause a slump in the housing market. This is not the early Nineties, when indebted and inefficient housebuilders recklessly chased a volume of new business that could not be sustained when the housing market tumbled, leaving many companies in financial ruin.

It bears repeating. This is not the early Nineties, when double-digit interest rates combined with a recession to cause a slump in the housing market. This is not the early Nineties, when indebted and inefficient housebuilders recklessly chased a volume of new business that could not be sustained when the housing market tumbled, leaving many companies in financial ruin.

Housebuilders' shares are cheap but they will stay cheap until it is proven that we have avoided a housing market crash this time around, and until companies have proved they can weather the slowdown.

Barratt Developments is the UK's biggest builder by volume, and will complete 14,500 homes in the year to June. It actually sold 8 per cent fewer private houses in the first six months of its financial year; but a dramatic expansion in its social housing took the total volume growth to 2 per cent. Barratt is tacking to the prevailing political wind, as it has done in the past when it positioned itself as the leading urban regenerator. Much-needed social housing sells for lower prices, but it costs less to build and nothing to market.

Barratt is a well-managed outfit, top of the pile in terms of return on capital, a key financial measure. It is also improving its sub-par margins. It has improved controls on its land buying, too, which will result in a slower-than-expected expansion of volumes this year and next, although that should snap back in 18 months. It is planning for modest growth in a market where demand for new homes is - because of well-known demographic changes - sure to stay high. With a 4 per cent dividend yield, it is a long-term buy.

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