Tony Pidgley, the £28m-a-year chairman of housebuilder Berkeley Group, is used to riding the ups and downs. The former Barnardo’s boy once lived in a disused train carriage.
So it is no surprise that the 71-year-old sees the slowdown in London’s property market as an opportunity. Berkeley has quietly been buying up slices of prime real estate at a discount to be ready for a market recovery.
Investors would do well to believe in Pidgley. Since founding Berkeley in 1976, he has earned a reputation for calling property cycles correctly — liquidating assets before the late-1980s housing crash, shifting resources into the centre of London in the 1990s, then pulling back from volume housebuilding before the 2008 financial crisis.
However, Berkeley shares have been on a rollercoaster ride over the past six months. Since sinking to an 18-month low of £32.26 on November 30, they have jumped 17% to £37.79. The rumour mill suggests an acquirer may have spotted hidden value that the market has missed.
So can investors expect more from Berkeley? Analysts are divided. UBS has a £46 price target on the stock, pointing out that its £860m net cash balance provides a strong buffer against Brexit-related troubles. The builder also has some high-value developments in London’s Millbank Quarter — which features a cinema, a 24-hour concierge and a courtyard garden — and Prince of Wales Drive, set in 2.5 acres of landscaped gardens.
Additionally, Berkeley will now face less competition for sites as other mainstream housebuilders flee the market. The company is also promising about £280m a year in shareholder returns until 2025. Berkeley is fond of generous share buybacks.
However, the full-year results for the year to April 2018 represented the peak of Berkeley’s current cycle, when it posted revenues of £2.7bn and pre-tax profits of £934.9m. Profits are expected to be 30% lower this year, as it plans for limited growth.
Analysts at Berenberg bank have set a £34.50 target for the shares and think there are better opportunities elsewhere in the sector.
With its bias towards London and the southeast, Berkeley is more exposed than competitors to any no-deal Brexit blow-up. And while housing stocks look cheap, the failure to secure a deal with Brussels could cause them to fall further.
Nevertheless, Berkeley’s chunky returns — and Pidgley’s plan to explore building in Birmingham, where house prices are still rising — should reward investors who wait for the market to recover. Hold.