Barratt Predicts Profit in Fiscal Second Half as Selling Prices Increase

Barratt Developments Plc, the U.K.’s biggest homebuilder by volume, said it’s “on track” to deliver a profit in the six months through June after selling more expensive properties.

The average selling price will probably increase by about 15 percent in the period, London-based Barratt said today in a statement. The company expects to sell about 11,500 properties in its full fiscal year ending next month, with houses accounting for about 60 percent of the total. That compares with 46 percent the previous year.

“The increase in our selling prices coupled with effective cost control is leading to good margin growth and we expect to deliver a profit for the second half,” Chief Executive Officer Mark Clare said on a conference call with reporters. “While the market has seen a measure of recovery, we remain cautious given continuing economic uncertainty and constrained lending.”

U.K. house prices jumped more than twice as much as economists forecast in April on a shortage of properties for sale, Nationwide Building Society said April 29. Mortgage approvals rose for the first time in four months in March as the effects of the worst cold snap in three decades and higher taxes on property sales faded, the Bank of England said May 4.     Barratt rose 5.4 percent to 122.8 pence as of 9:27 a.m. in London trading, its third straight gain. The stock has fallen about 1 percent this year, giving the company a market value of 1.2 billion pounds ($1.8 billion).

Higher Prices

About 3 percent of the price rises will be actual increases in value, with the remainder resulting from the change in product mix, Clare said. The profit would be the company’s first for a six-month period since the last half of 2007.

“We think that the new government should be, at worst, benign for the housing market and believe that house prices should rise gradually through this year,” said Charlie Campbell, an analyst at Liberum Capital in London. Barratt may “surprise the market on cash flows and margin recovery,” he said, advising clients to buy the stock.

Net debt is expected to be about 500 million pounds as of the end of June, after the company deferred some of its land payments. Barratt had debt of 605.3 million pounds as of Dec. 31. The homebuilder has agreed to buy 447.8 million pounds of land, or 12,286 plots on 90 sites, since mid 2009. The company’s land bank currently stands at 53,100 plots, or 4.6 years supply.

To contact the reporter on this story: Tim Barwell in London on tbarwell@bloomberg.net

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