London-focused housebuilder Berkeley Group plans to almost double its returns to shareholders to £1bn over the next two years in a sign that last year’s general election has returned confidence to the sector.
The FTSE 100 group did not explicitly mention Brexit or the recent Conservative victory in its update on Wednesday but hinted that greater political certainty was a factor in the increase of £455m on existing plans.
“Since 2016 [when the UK voted to leave the EU] like all responsible businesses, Berkeley has been mindful of the volatile operating environment and has been cautious in its investment, increasing its net cash position £107.5m to in excess of £1bn,” the housebuilder said. It added the board had reviewed its net cash position and future requirements “in light of the progress made in bringing forward its news sites and its assessment of the prevailing operating environment”.
The news propelled Berkeley’s shares more than 5 per cent higher in early London trading.
Under previous plans, Berkeley would have returned £280m each year to investors until 2025. After 2022 the group will revert to payouts of £280m a year, although it said it would continue to review its capital allocation policy.
UK housebuilders were hard hit by the 2008 financial crisis and subsequent recession. Profits have risen sharply since 2012 but the long-running political wrangle over Brexit created fresh uncertainty for the sector as economic sentiment was dented.
Housebuilders have also come under fire for the quality of their projects and for beefing up their profits through Help to Buy, a contentious government scheme intended to prop up the supply of homes. Critics argue the scheme has not allayed the UK’s housing shortage and has not made properties more affordable.
As uncertainty on the future of Britain’s departure from the bloc wanes, cash piles developed as cautionary buffers look set to be freed up. But a disorderly Brexit and possible global economic downturn could still hamper those plans.
Berkeley also said it would increase its production and delivery of homes by 50 per cent over the next six years.
“The group has put sufficient big pieces of land in place to give it visibility about future revenue,” analysts at Peel Hunt said. “The group has a better idea of the cash flow needed to develop them. Clearly the perception of the [post-election] trading environment has also improved.”
Over the six years to April 2025, the company is aiming to deliver £3.3bn in pre-tax profit, with a yearly average of between £500m and £700m. It will also review its remuneration plan and discuss it with shareholders it said.