Housebuilders divide neatly into those that are shovelling cash back hand over fist to investors and those that are going for growth. Barratt Developments has put itself firmly in the first camp. This puts it at odds with Redrow, say, which indicated last week that it saw plenty more growth in the UK and no necessity to jack up dividend payments.
Barratt denies that this is any huge change of strategy, although the rate of increase in completions, up 30 per cent over the past three years, will slacken off a bit.
The extraordinary growth of the housing market, and the one-off stimulus from Help to Buy last summer, mean that a couple of significant targets were reached ahead of time, namely a return-on-capital figure of approaching 20 per cent in the year to the end of June, up from 11.5 per cent the previous year, and a debt-free position for the first time in eight years. This has allowed the extra payments to shareholders to take place earlier than expected, while that target on returns is being moved ahead to 25 per cent.
This last looks entirely achieveable, because Barratt has spent £3.8 billion on land at cheaper prices since the downturn and the smaller sites on which it is building now are already showing a significantly higher return.
Pre-tax profits for the year came in more than doubled, up 103 per cent at £390.6 million. The average selling price was 13 per cent higher and this can only continue to improve as the company focuses more on the southeast and on larger homes. The total dividend is more than quadrupled, from 2½p to 10.3p. The company will return an extra £400 million in three one-off payments, £100 million in November next year, £125 million a year after that and £175 million a year later. Take in expected ordinary dividends and this means £950 million going back to sharholders, or about a quarter of the market capitalisation. This is the equivalent of 96p a share.
Barratt shares rose 10¼p to 377½p. The indicated dividend payments suggest a dividend yield over the period of well above 6 per cent, although, because the payments are back-end-loaded, the yield in later years is higher. Worth buying for that yield alone.
Revenue £316bn
Dividends 10.3p
14,838 Total completions up 8.6%
My advice buy
Why Like other housebuilders, Barratt is focused on returning large amounts to investors and the yield is attractive
On the face of it, Greene King’s latest trading statement covering the summer is disappointing. Its managed pubs lifted like-for-like sales by only 0.4 per cent. This is where the investment is going, as opposed to the tenanted pubs, known as Pub Partners. Yet the latter comfortably outpaced the supposedly higher-quality estate, with a 3.7 per cent rise in like-for-likes.
There are several one-off factors at play, though. One, the World Cup will have been a drag on the sector as a whole. Second, comparatives were against two Augusts, in 2013 and 2012, when the weather was exceptionally good — sales in both months were 5 per cent ahead of the previous year.
The Pub Partners division is more wet-led, as opposed to relying on the dining-out trade, and this would tend to outperform as Greene King’s garden space at its larger pubs was closed by the weather. Finally, the sale of 275 non-core pubs, announced in May, meant the disappearance of a large chunk of poor performers among the tenanted estate and should have improved the overall performance.
The company has yet to decide what to do with the £75.6 million raised at that time. It chose to walk away from the Orchid estate of about 250 pubs because the price was a bit rich. The money has been used to reduce debt to a comfortable level. It can always be redeployed elsewhere if opportunies appear. The shares, off from a peak of 925p in January, lost another 34p to 797½p. They sell on less than 13 times earnings, but further upside looks limited.
Rise in sales at retail estate 0.4%
My advice Hold
Why Further rises in sales across the group look limited
At some stage Optimal Payments, one of the most successful performers on AIM, will graduate to a full listing. It may even seek a quote in New York, after two deals this summer took it further into the United States.
Both would benefit investors. Technology shares like Optimal get a better rating on markets such as Nasdaq, while a London listing would widen the potential shareholder base. Both probably would coincide with another big deal and a further cash-raising. Though this does not look imminent, the arrival of three new non-executives is an indication of intent.
The company operates the Netbanx and Neteller online payment systems, the latter better-known after its sponsorship of Crystal Palace FC. Both are growing at a strong rate, Neteller by 46 per cent in the first half. Incremental new business feeds through strongly to profits and at the pre-tax level these were up by 77 per cent to $27.5 million.
Optimal is trying to lessen its reliance on one big gaming client in Europe and those American deals will help, as will further legalisation of gaming in the US. The shares, up 36¾p at 510p, sell on 21 times earnings and are starting to look expensive.
Revenue $159m
Free cash $56m
My advice Hold
Why Shares look dear, absent any further corporate moves
And finally...
For some months now GKN has been known to be interested in increasing its aerospace components business by buying a couple of plants in Oklahoma, but the story has gone quiet. The seller, Spirit AeroSystems, has confirmed recently that the plants, at Tulsa and McAlester, are for sale.
A note from Westhouse Securities runs the numbers and reckons that GKN could afford it without issuing fresh shares. It is, the note points out, two years since the last big aerospace deal, the purchase of Volvo Aero.
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