Berkeley Group Holdings PLC: A Better Buy Than Persimmon plc, Bellway plc & Barratt Developments Plc?


It’s been a hugely disappointing year for investors in Berkeley Group (LSE: BKG). That’s because shares in the prime housebuilder have fallen by 10% since the turn of the year, being beaten by sector peers Persimmon (LSE: PSN), Bellway (LSE: BWY) and Barratt Developments (LSE: BDEV), which are up 7%, 1% and 6% respectively. Does this mean, then, that Berkeley is now much better value than its rivals and is worth buying a slice of?

Solid Results

This week’s results from Berkeley Group were encouraging and showed that the company has been able to sustain its level of forward sales, despite a ‘normalisation’ of the housing market. In other words, housing transactions have fallen to ‘normal’ levels following a stronger-than-expected 2013, with Berkeley’s cash flow benefiting from the disposal of a portfolio of Berkeley’s ground rent assets for £100 million. Overall, the update was stable and in line with market expectations.

Looking Ahead

Clearly, the present time is turning out to be a ‘purple patch’ for UK housebuilders. A combination of an improving UK economy, ultra-low interest rates and a huge shortage of housing are helping to push house builders’ bottom lines upwards. For instance, Berkeley Group is forecast to increase its earnings by 5% in the current year and by 9% next year. Indeed, for a company that trades on a price to earnings (P/E) ratio of just 10.3, this shows that Berkeley Group offers excellent value for money at current price levels.

However, if it’s super-strong growth you’re seeking, Berkeley Group’s rivals seem better placed to deliver this. For example, while Berkeley Group’s earnings growth prospects are highly attractive, Persimmon is set to increase its bottom line by 39% in the current year and by 22% next year. It trades on a P/E of just 11.4 and so seems to offer much more growth than Berkeley Group for only a slightly higher price.

Similarly, Bellway is forecast to increase its earnings by 69% in the current year and by 24% next year, while trading on a P/E of just 10.5. Meanwhile, Barratt Developments is set to increase its profit by a whopping 107% this year and by 40% in the following year, with shares in the company having a P/E of just 12.3. So, there seems to be more growth on offer at sector peers for only slightly higher prices.


However, Berkeley Group is still worth buying. Certainly, it is not set to grow earnings as quickly as its rivals but, compared to its non-house building FTSE 100 peers, it remains hugely attractive. Furthermore, its focus on prime properties (as opposed to the mid-price point properties that Persimmon, Bellway and Barratt Developments concentrate on) could prove to be a prudent means of diversifying your house building exposure.

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Peter Stephens owns shares in Berkeley Group, Persimmon and Bellway. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.