Following excellent year end results, I decided to take a look at Berkeley Group.  I have been looking at a number of British house builders over the past couple of months as the sector appears to have excellent prospects and a number of industry participants are once more highly profitable and paying out healthy dividends.  For those who invested in or around 2012, the returns have already been phenomenal.  The question now is, are some house builders still attractively priced, having come so far already?

Screen Summary

  • With a PE ratio of 10.9x and a PCF of 9.4x, the company seems relatively cheap on an earnings basis.
  • A PB of 2.8x would not be considered cheap, but this seems justified by the level of the business's earnings.
  • ROE and operating margin of around 25% are both excellent, and superior to competitors in the sector.
  • Revenue and earnings have been rising steadily for a few years now, with the company now committing to significant dividends too.

Current Trading

Berkeley Group announced that its net profit for the year ended 30th April is up to £423.5m from £292.2m in the prior period.  This represents an increase of 44.6% and is a fantastic result from the company.  Adding to this further, book value has grown by 12.5%, after paying out dividends, and the company ended the year with a net cash position of £430.9m up from £129.2m previously.  The momentum in the business does not appear to have slowed at all and this fits with the story of rising house prices and foreign investment demand in London and the south east of England.  Demand for Berkeley's developments in the area is, in part, evidenced by the fact that their stock of completed buildings sits at all-time lows, with current cancellation rates of 10% well below the long term average of 15-20%.

Differentiating Characteristics

Berkeley believe that they distinguish themselves through quality in all aspects of the service they provide and there is strong evidence to support this.  Their development at Roman House won the top considerate constructors site from a pool of 9,015 sites across the UK.  Their net promoter score (which measures customer satisfaction) is the highest in the sector and they are the only company in the UK which seeks to measure and address people's…

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