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
Arts and Entertainment
Buttoned up: Ryan Reynolds with Helen Mirren in ‘Woman in Gold’
filmFor every box-office smash in his Hollywood career, there's always been a misconceived let-down. Now he says it's time for a reboot
News
people
News
Actress Julianne Moore wins the Best Actress in a Leading Role Award for 'Still Alice' during the 87th Annual Academy Awards in Hollywood, California
people
Sport
Ross Barkley
footballPaul Scholes says it's time for the Everton playmaker to step up and seize the England No 10 shirt
News
'We will fix it': mice in the 1970s children’s programme Bagpuss
science
Life and Style
2 Karl Lagerfeld and Choupette
fashion
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
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

SThree: Graduate Recruitment Resourcer

£20000 per annum + commission: SThree: Sthree have an exciting opportunity for...

Recruitment Genius: Telesales Executive - OTE £32,000+

£18000 - £32000 per annum: Recruitment Genius: A Telesales Executive is requir...

Ashdown Group: Marketing Manager - B2B, Corporate - City, London

£45000 - £50000 per annum + benefits : Ashdown Group: A highly successful, glo...

Neil Pavier: Commercial Analyst

£50,000 - £55,000: Neil Pavier: Are you a professionally qualified commercial ...

Day In a Page

War with Isis: Iraq declares victory in the battle for Tikrit - but militants make make ominous advances in neighbouring Syria's capital

War with Isis

Iraq declares victory in the battle for Tikrit - but militants make make ominous advances in neighbouring Syria
Scientists develop mechanical spring-loaded leg brace to improve walking

A spring in your step?

Scientists develop mechanical leg brace to help take a load off
Peter Ackroyd on Alfred Hitchcock: How London shaped the director's art and obsessions

Peter Ackroyd on Alfred Hitchcock

Ackroyd has devoted his literary career to chronicling the capital and its characters. He tells John Walsh why he chose the master of suspense as his latest subject
Ryan Reynolds interview: The actor is branching out with Nazi art-theft drama Woman in Gold

Ryan Reynolds branches out in Woman in Gold

For every box-office smash in Ryan Reynolds' Hollywood career, there's always been a misconceived let-down. It's time for a rethink and a reboot, the actor tells James Mottram
Why Robin Williams safeguarded himself against a morbid trend in advertising

Stars safeguard against morbid advertising

As film-makers and advertisers make increasing posthumous use of celebrities' images, some stars are finding new ways of ensuring that they rest in peace
The UK horticulture industry is facing a skills crisis - but Great Dixter aims to change all that

UK horticulture industry facing skills crisis

Great Dixter manor house in East Sussex is encouraging people to work in the industry by offering three scholarships a year to students, as well as generous placements
Hack Circus aims to turn the rule-abiding approach of TED talks on its head

Hack Circus: Technology, art and learning

Hack Circus aims to turn the rule-abiding approach of TED talks on its head. Rhodri Marsden meets mistress of ceremonies Leila Johnston
Sevenoaks is split over much-delayed decision on controversial grammar school annexe

Sevenoaks split over grammar school annexe

If Weald of Kent Grammar School is given the go-ahead for an annexe in leafy Sevenoaks, it will be the first selective state school to open in 50 years
10 best compact cameras

A look through the lens: 10 best compact cameras

If your smartphone won’t quite cut it, it’s time to invest in a new portable gadget
Paul Scholes column: Ross Barkley played well against Italy but he must build on that. His time to step up and seize that England No 10 shirt is now

Paul Scholes column

Ross Barkley played well against Italy but he must build on that. His time to step up and seize that England No 10 shirt is now
Why Michael Carrick is still proving an enigma for England

Why Carrick is still proving an enigma for England

Manchester United's talented midfielder has played international football for almost 14 years yet, frustratingly, has won only 32 caps, says Sam Wallace
Tracey Neville: The netball coach who is just as busy as her brothers, Gary and Phil

Tracey Neville is just as busy as her brothers, Gary and Phil

The former player on how she is finding time to coach both Manchester Thunder in the Superleague and England in this year's World Cup
General Election 2015: The masterminds behind the scenes

The masterminds behind the election

How do you get your party leader to embrace a message and then stick to it? By employing these people
Machine Gun America: The amusement park where teenagers go to shoot a huge range of automatic weapons

Machine Gun America

The amusement park where teenagers go to shoot a huge range of automatic weapons
The ethics of pet food: Why are we are so selective in how we show animals our love?

The ethics of pet food

Why are we are so selective in how we show animals our love?