- High-end housebuilder relies on just buybacks for its cash return programme during its first half
- Berkeley last did this in the six months to April 2022 when the share price had tumbled
- This suggests management feels the shares are too cheap, as they trade at barely one times historic net asset value (NAV) per share
- FTSE 100 member has returned £3.3 billion to shareholders in the past decade, more than 90% of its current stock market capitalisation
- A further £640 million cash return plan is in place for 2025 to 2030
“Shares in high-end housebuilder Berkeley are no higher than they were ten years ago, even though its net assets on its balance sheet are double what they were back then, and this is clearly catching the eye of the management team,” says AJ Bell investment director Russ Mould.
“To conclude a long-running cash return plan, and begin its next five-year, £640 million scheme, Berkeley used only buybacks in the six months to October, and paid out no dividends, which makes perfect sense when the shares trade around, or below, book value.
Source: Company accounts. Financial year to April.
"Berkeley ended its fiscal first half with £3.6 billion of tangible net assets on its balance sheet, or the equivalent of £37.63 in tangible net asset value (TNAV) per share. Yet its shares trade at £36.66, or 0.97 times TNAV. A share buyback is therefore, in effect, buying £1 of assets for 97p.
“So long as the value of the assets is reliable, this is a very easy way to create value for shareholders, and Berkeley has the experience on one hand and the available cash on the other to make this calculation work.
Source: Company accounts. Financial year to April.
“Investors are nervous about the trajectory of the UK economy, the slow decline in headline interest rates (and thus mortgage rates) and also wider housing affordability, given the multiples of the average UK average annual salary required to buy an average UK house, based on the figures provided by the Office for National Statistics for the former (£38,116) and Halifax for the latter (£299,892). Berkeley’s average selling price also exceeds that figure by some distance, at £570,000, even after a sharp drop from its peak of five years ago.
Source: Company accounts. Financial year to April.
“Easier monetary policy and looser planning regulations could yet help, and Berkeley is looking to develop its Build-to-Rent platform as an additional sales channel over the course of the next decade. Management has already committed £1.2 billion to this plan so it can build 4,000 rental homes, starting with six sites in Haringey, Greenwich, Staines, Slough, Wembley and Hendon.
“Investors are yet to be convinced, however, judging by Berkeley’s share price and the valuation attributed to its stock. This is not unique to Berkeley, as the whole housebuilding sector trades close to, or below NAV, a far cry from the premiums to book value that prevailed during the boom stoked by the now-closed Help-to-Buy scheme. The whole sector trades on an average of 0.94 price to historic book value.
Source: Company accounts, LSEG Refinitiv data, Marketscreener, consensus analysts’ forecasts
“These lowly multiples of NAV suggest their shares may be cheap, and Berkeley’s careful management of its cash return programme suggests that its board agrees.”
