The Investment Column: Berkeley builds on its reputation

Tony Pidgley earned a reputation in the late 1980s for being something of a housing market guru. The managing director of upmarket housebuilder Berkeley went substantially liquid just as house prices were riding for a fall. During the subsequent five-year property slump Berkeley bucked the sector trend, delivering a period of profits, earnings and dividend growth backed by a cash-rich balance sheet.

Results for the year to April continued this enviable run. Pre-tax profits rose 15 per cent to pounds 43.4m on turnover 18 per cent higher at pounds 334m. Earnings per share advanced a more modest 11 per cent to 34.8p, held back slightly by the dilution of February's pounds 73m rights issue.

The secret of Berkeley's success lies, as with any good property business, in "location, location and location" and the company is benefiting from a trend towards the small town and city centre sites it specialises in.

The bulk of its business is building executive-style homes, often with joint venture partners such as large land-owning utilities such as Thames Water, in and around London, a region which has seen the biggest house price rises in recent months. Projects in the capital include schemes in Barnes, Hampstead and near St Paul's Cathedral.

As the chart below shows, 80 per cent of the 1,560 homes sold last year went for at least pounds 100,000. The average selling price rose from pounds 190,000 to pounds 208,000, reflecting a shift towards more expensive homes rather than any significant upward movement in house prices, which are growing at about 4 per cent a year.

So much for the good news. Given Berkeley's impressive track record, when Mr Pidgley warns that activity in the housing market could stagnate in the run-up to the general election, commercial rivals and potential house buyers alike should take notice.

Assuming the Conservatives leave going to the country until the last possible moment next May, Berkeley reckons it could lose up to two months of sales worth pounds 60m due to uncertainty about the election outcome and its consequences for interest rates and consumer confidence.

But Berkeley is cautious, and net reservations in the first two months were up a fifth on the same period last year. Whether Berkeley can maintain its momentum as political uncertainties increase remains to be seen, but with pounds 35.6m of cash in the bank, it is better placed than most.

Merrill Lynch looks for pre-tax profits this year of pounds 56m rising to pounds 66.5m in 1997/98. That implies a p/e ratio falling from 16 to 13 with the high- flying shares closing 3p better yesterday at 617p. The executive homes market may not look so clever a year from now, so that is probably high enough.

Start your day with The Independent, sign up for daily news emails
News
ebookA unique anthology of reporting and analysis of a crucial period of history
News
peopleMathematician John Nash inspired the film Beautiful Mind
News
Richard Blair is concerned the trenches are falling into disrepair
newsGeorge Orwell's son wants to save war site that inspired book
Life and Style
Audrey Hepburn with Hubert De Givenchy, whose well-cut black tuxedo is a 'timeless look'
fashionIt may be a paradox, but the industry loves it
Arts and Entertainment
The pair in their heyday in 1967
music
Life and Style
fashionFrom bathing dresses in the twenties to modern bikinis
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Neil Pavier: Management Accountant

£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

Sheridan Maine: Commercial Accountant

£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

Laura Norton: Project Accountant

£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

Day In a Page

Abuse - and the hell that came afterwards

Abuse - and the hell that follows

James Rhodes on the extraordinary legal battle to publish his memoir
Why we need a 'tranquility map' of England, according to campaigners

It's oh so quiet!

The case for a 'tranquility map' of England
'Timeless fashion': It may be a paradox, but the industry loves it

'Timeless fashion'

It may be a paradox, but the industry loves it
If the West needs a bridge to the 'moderates' inside Isis, maybe we could have done with Osama bin Laden staying alive after all

Could have done with Osama bin Laden staying alive?

Robert Fisk on the Fountainheads of World Evil in 2011 - and 2015
New exhibition celebrates the evolution of swimwear

Evolution of swimwear

From bathing dresses in the twenties to modern bikinis
Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine