Barratt Developments shares slide on profit drop

Investing.com - Shares of Barratt Developments (LON:BDEV) slid on Wednesday after it reported a drop in profits for the year ended 30 June 2024, amid a challenging market environment. At 4:56 am (0856 GMT), Barratt Developments land was trading 1.8% lower at £510.80. The UK housebuilder reported a 47.7% slump in gross profit to £509.5 million, down from £974.9 million in the previous year. This was primarily driven by lower home completions and a reduced average selling price, exacerbated by sustained cost pressures, including site-based fixed costs and build cost inflation. “We think all of this together implies a modest profit drop for Barratt stand alone in FY25, which is slightly below our expectations,” said analysts at UBS in a note. The company’s gross margin also contracted, falling to 12.2% from 18.3% in FY23—a decrease of 610 basis points. Barratt’s revenue also took a hit, declining by 21.7% year-on-year to £4,168.2 million, down from £5,321.4 million in FY23. “Total home completions of 14,004(3) (FY23: 17,206), at the upper end of our expected range for the year, but 18.6% lower than FY23, reflecting the lower private order book entering FY24 and lower average outlet numbers during the year,” the company said in a statement. The company’s adjusted profit before tax, which excludes certain one-off items, also fell sharply by 56.5% to £385 million, down from £884.3 million in FY23. Additionally, Barratt announced a cut to its dividend. The total ordinary dividend per share for FY24 was reduced by 51.9% to 16.2 pence, down from 33.7 pence in FY23. “Barratt can see the track ahead, it can visualise the finishing line, but until it can leave its marks, it is giving its rivals a head start in a housing market aided by political tailwinds,” said analysts at RBC Capital Markets in a note. “We expect the integration to begin by the end of October, at which point it will be full speed ahead as Barratt makes up for lost time. In the meantime outlet numbers will constrain growth,” RBC said. Barratt expects a continued challenging market environment, particularly due to affordability constraints driven by current mortgage pricing and limited availability of higher loan-to-value mortgages. The company has projected home completions for FY25 to be between 13,000 to 13,500, reflecting the short-term impact of a lower number of outlets. “As new outlets come into production in the latter part of the year and early FY26, we expect average sales outlet numbers in FY26 to be ahead of FY24 levels,” the company said.