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Barratt Developments sales hit record but cladding costs slow profits

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Barratt Developments PLC (LON:BDEV) has resumed dividend payments after house sales hit a new record in the six months to end-December 2020.

Interim revenues rose by 10.1% to £2.49bn (2019: £2.27bn), but profits only edged higher to £430.2mln (2019: £423mln) with a further £63.4mln set aside for cladding rectification work at the Citiscape development in Croydon (£59mln) and elsewhere (£4.4mln) following the Grenfell Tower inquiry.

Cladding provisions now total £81.8mln, of which £6.3mln has been utilised and £3.5mln released.

The FTSE housebuilder completed 9,077 sales in the half-year, up 9.2% on the previous year which reflected a rebound following the coronavirus lockdown in March and clearing some of the backlog.

Demand in the first quarter was exceptionally strong, it said but moderated later in the period.

Reservations over the period rose to 0.77 per week on average from 0.69 during the same period in 2019.

In a statement, David Thomas, Barrtt chief executive, said: “We have also made a solid start to the second half and are now over 95% forward sold for our financial year.  Whilst we are mindful of the continued economic uncertainties, the housing market fundamentals remain attractive and our outlook for the full year remains in line with expectations.”

The proposed interim dividend is 7.5p with a full-year target of 2.5 times earnings cover. Net cash at the half-year end was £1.1bn.

Susannah Streeter at wealth manager AJ Bell added: “Brick by brick, viewing by viewing and sale by sale, this is an impressive recovery but cracks could still appear later this year.

“There are fears that the housing market mini-boom could fizzle out with stamp duty relief and furlough schemes scheduled to come to an end in the Spring.

“The restriction of the help to buy scheme to first time purchasers only, may also weigh on demand. If house prices fall Barratt could struggle to make money on the land it’s already bought.

“However Barratt Developments balance sheet has been strengthened by this strong period of cash generation. It has also made an impressive start to the second half with a thick order book of 95% forward sold for the financial year.”

Shares rose 1.1% to 681.4p.

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