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Tuesday, July 5, 2022

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Berkeley – Looking Fit To Fight

By Anna Peel. Originally published at ValueWalk.

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A commentary on Berkeley Group Holdings PLC (LON:BKG)’s results from Freetrade senior analyst Emilie Stevens.

Berkeley Group’s Earnings

While solid results for the year, Berkeley (along with the housing sector) is seemingly much less sure about its prospects for the year ahead.

And in the short term, we’d tend to agree.

We heard from Rightmove this week, that demand for housing has slowed and that’s a trend that’s set to continue as the cost of living bites and interest rates are expected to rise to 3% by the end of the year.

Q1 2022 hedge fund letters, conferences and more

If you think many mortgages (although mostly fixed for at least a few years) were linked to a base rate of 0.25% last year, given where we’re heading, it’s perhaps no surprise there’s more caution. But we’re not in crunch territory yet.

Then there’s the case of cost inflation, which Berkeley expects to stay. The group absorbed the increases in costs this year in full, but the coming year’s market might not be so susceptible to 10% price rises.

And while Berkeley’s London focus has served it well to date, the pandemic’s WFH trend could mean it’s other developers that are better suited to this next phase.

The big thing that was left out of these results was news of a dividend and we expect that’s got something to do with the continued assessment of cladding costs the firm might have to cough up. So far we’ve seen while significant they are not disastrous for any firm.

All in, Berkeley is in good shape. While there are certainly choppier waters ahead, the great developer sell-off still feels a touch overplayed.

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