I have bought a holding in Berkeley Group (LON:BKG) , the house builder focussed on London and the South East. It came to my attention as it passes no less than six growth and momentum screens on the Stockopedia website. On December 7th it reported on the six months to the 31st October 2012. The results showed revenue up 70% on the year before, operating profit up 91.4% , pre-tax profit up 40.7% and earnings per share up 38%. The Company increased its return on equity to 24.5% from 20.8%. If you didn't already know it Tony Pidgeley, Chairman and co-founder, knows how to run a house builder.
In the statement Tony Pidgely was confident about future earnings which was behind the Board's decision to pay a 15p dividend in April 2013. This will be the first distribution to shareholders since the Company returned £2 per share in January 2008. In the managing directors report Rob Perrins outlines the long term strategic plan to return £1.7bn of cash to shareholders by September 2021 through a combination of share buybacks and dividends of not less that £13 per share. There are milestones built into the plan: £568m to be returned by Sept 2015, a further £ 567m by Sept 2018 and the final £567m by September 2021. In simple terms, over the next 9 year the Company plans to return over 70% of the current market capitalisation.
The shares have been a strong performer this year, which I guess is not surprising given that at the start of the year earnings were forecast at 110p for the year to April 2013 compared to current forecasts of 135.6p.
In conclusion, on consensus forecasts the shares are valued at 12.9x to April 2013, falling to 11x the following year. That seems good value to me before one factors in the expected return of capital. I have bought a 4% holding in the JIC portfolio. (see transaction history)
www.berkeleygroup.co.uk
www.JohnsInvestmentChronicle.com
Berkeley Group (2159p and 3.0% of JIC) Excellent results from Berkeley Group for the year ended 30th April 2013. It has beaten forecasts on turnover, profits and earnings by some margin. Pre tax profits are up 26.0% to £270.7m, it has increased operating margins to 20.4% from 18.8% and has achieved a return on shareholders' equity of 22.4%.
The balance sheet is strong with net cash of £44.7m compared to net debt of £57.9m a year ago and cash due on forward sales stands at a massive £1,452.8m compared to £1,055.7m a year ago. It has pretty much maintained its land bank with 25,684 plots, slightly down on 26,021 a year ago. Berkeley committed £315m to acquire ten new sites, contributing to its net investment in work in progress increasing by £289m. It also says that it "remains on target to meet its previously announced aspiration to increase the value of the estimated gross margin in the land bank to £3 billion by April 2014, one year earlier than originally planned."
The Company says it is on track to meet the first £568m milestone in its 10 year plan to return £1.7bn to shareholders by 2021 and has declared an interim dividend of 59p per share which will be paid in September. The long term strategic plan is to return £1.7bn of cash to shareholders by September 2021 through a combination of share buybacks and dividends of not less that £13 per share. There are milestones built into the plan: £568m to be returned by Sept 2015, a further £567m by Sept 2018 and the final £567m by September 2021. In simple terms, over the next 8 years the Company plans to return over 60% of the current market capitalisation.
Conclusion: In previous postings I have been effusive about the skills of Tony Pidgeley in managing a house builder. These results are excellent and I think show that the Company is managing its business superbly to maximise the returns from its operations in London and the South East. Earnings forecasts will go up for the current and future years which I suspect will help the shares move higher. Happy Holder!
