Barratt cuts dividend, Scotia sees weaker demand

Castlewell Ellon Barratt
Barratt: modest uplift in reservations

Housebuilder Barratt Developments posted a rise in interim profits but said net reservations in January had fallen 45% as buyers held back amid rising interest rates.

Pre-tax profit for the half year to the end of December came in 15.9% higher at £501.5m on revenue up 24% to £2.8bn.

However, forward sales at the end of January fell to 10,854 homes from 15,736 in 2022 and it announced a cut to its dividend to 10.2p (HY22: 11.2p).

In a statement, the company said: “The current trading outlook remains uncertain with only four weeks’ trading since the start of 2023.

“Reservations have shown a modest uplift since the start of January, helped by the tempering in both future interest rate and energy cost expectations, as well as the introduction of more competitive mortgage rates.

“The sustainability of this recovery however remains uncertain, notably with respect to the challenges still faced by first time buyers.

“We expect to deliver total home completions of between 16,500 to 17,000 in FY23 (including c. 750 JV completions).”

AJ Bell investment director Russ Mould said: “A slight improvement in the housing market in January has reassured shareholders in Barratt Developments but the company’s decision to cut its dividend suggests it is reacting to new realities.

“The decision to scale back the dividend is also a bit of an ominous marker for the rest of the housebuilding space.”

Charlie Huggins, Head of Equities at Wealth Club gave the company the benefit of the doubt.

“Faced with higher mortgage costs and soaring bills, it’s no surprise that new home buyers are exercising greater caution,” he said.

“Barratt has responded by battening down the hatches, significantly reducing land approvals and placing restrictions on hiring and new site openings. This is sensible in the circumstances.   

“However, the picture is not looking as grim as it was back in the Autumn, following the disastrous mini budget. Despite rising interest rates, mortgage rates have fallen in recent months due to intense competition between lenders.

“And there is a growing sense that interest rates are close to peaking. If that turns out to be the case, confidence in the housing market could quickly return.”

Scotia enjoys strong 2022, but cautions on current trading

Ellon headquartered housebuilder Scotia Homes said it had benefited from strong volumes while rising house prices outstripped the increasing cost of materials.

This had enabled the company to grow gross margins by 24% in the year to the end of June 2022.

The company reported a 16% increase in operating profit to £4.4m  on a 21% rise in turnover to £40m. Completions increased to 165 units (2021: 142 units). 

Joint managing director Graham Reid, said: “Our 2022 results are really impressive considering the challenges that we faced with labour and material availability shortages and high levels of cost inflation during the period.”

However, chairman Gary Gerrard offered a note of caution, saying: “the operating environment across the housebuilding sector has undoubtedly become more challenging since the year end.”

He added: “A combination of high cost inflation and weaker demand due to the cost of living squeeze and increasing mortgage rates has depressed enquiry rates. 

“The board continues to monitor the situation closely and is using incentives such as part-exchange, assisted sale and mortgage subsidy to support sales levels.

“We remain encouraged by the continued recovery in the residential property market in Aberdeen City and Shire and we continue to see strong demand for our prime sites in areas such as Aviemore and Kincraig in the Cairngorm National Park.”

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