The Berkeley Group Holdings (LSE: BKG) shares have fallen along with the rest of the house construction sector in 2023. And they dipped a bit further when fiscal year results dropped on Wednesday.
Over five years though, the share price has held up better than the rest of the sector. We’re looking at almost no change at all.
Recovery stock?
So what’s happening, and are Berkeley Group shares a bargain buy now, for our next housing recovery?
Should you invest £1,000 in Berkeley Group right now?
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I’d say a recovery is inevitable, with the only real question is when? It can be a cyclical business, though the cycles tend to be quite long.
After the sector was last kicked by falling house prices, the business entered into a long bull run. And shareholders pocketed fat annual dividends right up until, well, now.
Berkeley hasn’t been paying such big dividends as its peers, and the latest 91p per share amounts to a yield of just 2.4%. The firm has been returning cash through share buybacks, though, which might help explain why the share price has been reasonably solid.
Berkeley outlook
The company says it’s on track to meet its guidance for the next two years. Forecasts show earnings dropping between now and 2025. But they should still be enough to keep the price-to-earnings (P/E) down to around 12 in two years’ time.
So with Berkeley shares down 3% on the day, at the time of writing, why the muted market response?
Well, pre-tax profit for the year ended 30 April did rise by 9.5%. But the firm warned that forward sales are falling. So far, they’re 15% behind last year’s levels. And the company reckons sales for the 2023-34 year should dip by 20%.
“The near-term market outlook is therefore uncertain, much the same as it has been since September 2022”, the update said.
Inflation stuck
We had some bad inflation news on the same day, with it stuck at 8.7%. That’s despite energy prices softening, and more supermarkets reversing some price rises. So another interest rate rise when the Bank of England next meets seems more likely now.
Hopes for quick interest rate falls look to have been well dashed now, with mortgages likely to become even more expensive.
So I think the the slump in housebuilder share prices could go on for a fair bit longer. I, for one, thought interest rates would have topped out by now.
Time to buy?
Despite pessimism in the sector looking like it had reached a peak, it just got worse. But what was it that ace investor Sir John Templeton once said?
It takes courage “to buy when others are despondently selling, to sell when others are avidly buying.“
I think he’d be buying UK housebuilder shares now. We still have a market defined by housing shortages. And that has to be good thing for investors buying for the long term, doesn’t it?
They certainly did well buying at the bottom of the last sector downturn. And I have housebuilder shares high on my list for future buys.
