The share prices of FTSE 350 housebuilders Berkeley Group (LON: BKG) and Vistry Group (LON: VTY) have been boosted by the stamp duty holiday. It has prompted a surge in demand for new homes that enabled them to report upbeat financial performances in recent months.
While the stamp duty holiday is now nearing its end, both companies appear to have the financial positions and strategies to deliver improving results in future. Coupled with continued low interest rates and an improving economic outlook, their valuations could indicate that capital growth is ahead over the long run.
Vistry Group
Vistry Group’s share price has almost doubled in the past year. Despite this, it trades on a forward price-earnings ratio of around 10. Furthermore, it is forecast to deliver an annualised increase in earnings per share of over 10% in the next two financial years.
Encouragingly, the company recently reported strong levels of customer demand for properties due to complete after the stamp duty holiday ends. This suggests that factors such as low interest rates and the UK’s economic prospects, which includes a 7% expected growth rate this year, may offer ongoing optimism for the firm. Further details on its performance are expected in next week’s half-year results.
In addition, Vistry Group continues to make progress in improving its competitive position. For instance, customer satisfaction levels increased to 92.6% in the first half of the year, while it secured a total of 5,642 plots during the period. Furthermore, the company’s net cash position of £32m indicates that it is in a solid position to overcome potential uncertainty as Covid-19 remains a threat to the wider housebuilding industry.
Clearly, rising costs and the prospect of higher inflation could squeeze the firm’s margins. However, favourable conditions for the housing market suggest they could continue to be offset by house price rises over the coming years.
Berkeley Group
Berkeley Group’s share price has experienced a solid recovery following the March 2020 stock market crash. However, its 6% rise in the past year lags many of its FTSE 350 sector peers. This may partly be due to its London focus at a time when the capital’s property market has been softer than that of the wider UK.
Although recent trends may persist in the short run, the end of Covid-19 restrictions could prompt a gradual rise in demand for London properties. The return of office workers, albeit on a likely smaller scale than pre-Covid, and tourists, over the long term as travel restrictions ease, could create growth opportunities for the business. Indeed, its 29 long-term complex regeneration developments are expected to produce a 50% rise in housing delivery by 2025 versus the firm’s 2019 level.
Berkeley Group’s net cash position of £1.1bn shows that it has the financial means to overcome short-term threats. This provided it with the means to capitalise on a softer market during the pandemic, with the company adding ten new sites that equate to 6,650 new homes to its land holdings in the 2021 financial year. Further information on this and other areas is expected in this week’s trading update.
Clearly, an uncertain economic environment and the ongoing pandemic remain threats to the company’s prospects. However, the firm’s forward price-earnings ratio of 13.9 suggests that it offers a margin of safety while many FTSE 100 index peers trade on significantly higher ratings.