Barratt Developments almost went bust in the last crisis. In 2007, the housebuilder got caught in a bidding war for its smaller rival, Wilson Bowden, and ended up paying a whopping £2.2bn. The move saddled it with £1.7bn of debt.
As banks and markets crashed the following year, Barratt had to cut 1,200 jobs, write down the value of its land bank and renegotiate terms with its lenders. Then chief executive Mark Clare came under severe pressure, but managed to stay afloat.
At his side from 2009 as finance chief was David Thomas, who stepped up to the top job when Clare retired six years later. Under the leadership of the 57-year-old, Barratt is in much better shape to weather the coronavirus storm.
Fears around Covid-19 and demand have pushed down the share prices of the big listed housebuilders by an average of 54.8% over the past month — steeper drops than both the FTSE 100 and FTSE 250 in that time. Barratt has lost more than half its £8.5bn valuation in a month.
While the banking crisis was an existential one for housebuilders, this time the market may have overreacted to the disruption caused by the coronavirus. “Relative to most other sectors, it should fare better,” said Numis analyst Chris Millington. “Housebuilders look to be in a pretty good place.”
Millington reckons that while the big builders went into the last crash with £4.8bn debt, before Covid-19 they had £3.9bn in cash — partly as a result of the controversial, taxpayer-funded Help to Buy scheme. Barratt had £433.8m net cash at the end of December.
Thomas, formerly finance chief at video game retailer Game and hotelier Millennium & Copthorne, has focused on quality — no other big builder has had the top customer satisfaction rating for longer than Barratt’s 10 consecutive years — and building a sustainable balance sheet. With 17,856 homes completed in its last full year, no other builder puts up more houses.
Despite the pandemic, Barratt’s sites — mainly in the south — are open for buying and selling, though sources stress the company is minimising risks of spreading the disease. With the economy grinding to a halt and people urged to practise socially distancing, Barratt is sure to take a hefty sales hit.
The share price fall last Wednesday sent Barratt’s market value below its £3.7bn net asset value, a key metric. Even with a late rally on Friday it closed down 17.1% at 408.2p, giving it a £4.2bn market cap. As long as the disruption from coronavirus is measured in months and not years, Barratt should be as safe as houses. Buy.
