The Motley Fool

Is Barratt Developments set to benefit from a housing sector turnaround?

For some time now the UK housing market has been subdued. Even in the most popular parts of London, prices have been fairly stagnant. Add to this the uncertainty surrounding Brexit that has plagued political life and the markets alike, and the past few years have not really been good ones for property developer share prices.

Things may be about to change however. Earlier this month Barratt Developments (LSE: BDEV), the UK’s biggest housebuilder, posted some good first-half results and announced an additional £175m investor payout to come this year.

Claim your FREE copy of The Motley Fool’s Bear Market Survival Guide.

Global stock markets may be reeling from the coronavirus, but you don’t have to face this down market alone. Help yourself to a FREE copy of The Motley Fool’s Bear Market Survival Guide and discover the five steps you can take right now to try and bolster your portfolio… including how you can aim to turn today’s market uncertainty to your advantage. Click here to claim your FREE copy now!

Paying dividends

The £175m payment by Barratt comes on top of the company’s ordinary dividend payout, which at the current price yields about 3.4%, and also comes in addition to an already-announced £175 payout due in November. Shareholders are understandably pleased.

Barratt did warn that any optimism surrounding its own business and the housing market generally in the medium term would be dependent on the post-Brexit transition, but still gave all indications of feeling positive.

CEO David Thomas Barratt said the company weathered the uncertainty before December’s election very well, adding: “What we have definitely seen in January is more customer interest, more web inquiries, more customer footfall”. This is good news of course, but notably, a little short on actual numbers.

Looking at the numbers we do have, for the first half, Barratt saw pre-tax profits climbing 3.7% while revenues grew 6%. Completions for the six months were at a 12-year high of 8,314, up 9% from the same period last year.

Inside sales

Barratt’s share price has, of course, been benefiting, up almost 20% since the start of the year, and almost 50% over the past six months. Some news garnering headlines has been that Chief Operating Officer Steven Boyes recently sold about 435,000 shares after the strong results.

Naturally some are worried that an insider selling shares means he is taking profit before things go south, but I think this is highly unlikely.

The company said the sale was made purely for normal financial housekeeping on Mr Boyes’ part, and though to the average investor, this may seem strange, at his level, portfolio balancing on such a large scale is perfectly normal. If you have to sell some shares, you may as well sell them while they are up.

At the top or just starting?

But one concern I have with companies like Barratt and sector peer Taylor Wimpey at the moment is that I cannot decide if these recent gains are part of a long-term, or at least mid-term, trend back to a growing housing market, or if they are simply a recovery from pressures suffered because of Brexit that are not supported by market fundamentals.

I suspect the fundamentals are there, but I am not 100% certain. Interest rates are still low and the country is still short on housing. I do think house prices have probably been overinflated for some years, particularly in London, though as with all bubbles, people will disagree with this right until the point it bursts.

I feel the recent subdued market has probably helped calm this down, which is fundamentally a good thing. It does mean, however, that the gains made by Barratt recently may not be quite as sustainable after the initial boost of Brexit fades.

A top stock with enormous growth potential

Savvy investors like you won’t want to miss out on this timely opportunity…

Here’s your chance to discover exactly what has got our Motley Fool UK analyst all fired up about this ‘pure-play’ online business.

Not only does this company enjoy a dominant market-leading position…

But its capital-light, highly scalable business model has been helping it deliver consistently high sales, astounding near-70% margins, and rising shareholder returns … in fact, in 2019 alone it returned a whopping £151.1m to shareholders in dividends and buybacks!

And here’s the really exciting part…

We think now could be the perfect time for you to start building your own stake in this exceptional business—especially given the two potentially lucrative expansion opportunities on the horizon that our analyst has highlighted.

Click here to claim your copy of this special report now — and we’ll tell you the name of this Top Growth Stock… free of charge!

Karl has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.