Barratt: H1 results

4:13 a.m. Thu 30 Mar 2006

Housebuilder Barratt reported a 2% increase in sales and a 4% increase in underlying pre-tax profits for the half year to December 2005, in line with expectations. The company defines ‘underlying pre-tax profits’ to exclude a £6.4m profit on the disposal of ground rents in 2004.

Reported (ie including the item excluded above) pre-tax profits were flat at £163.9m (H1 2004: £163.5m).

On the positive side, operating margin increased slightly (14.8% against 14.4% last year), completions rose to 7,003 (2004: 6,866) and average selling price rose slightly to £166,600 (2004: £165,600).

Forward sales at end December, although down 12% at £708m (2004: £803m) were still fairly respectable. The company says forward sales as at today stand at £910m, which together with completions this year, secures 90% of the full year target.

The company has ridden out the slow-down in the housing market rather better than some of its peers. Given the strong order book, the short-term outlook is fairly good and the company should have little difficulty outperforming the sector in the short run.

The real concern is how the longer term housing market will move, we tend to be bearish on the outcome but investors expecting a ‘soft landing’ may well find value in the sector.

Trading at 1087.95p, on a prospective PE (2006 earnings) of 9.3x, the share is at the upper end of the sector range, with a yield of 2.9%.