Barratt Developments (LSE: BDEV) unveiled an impressive set of final results this morning: earnings per share rose by 305% to 31.2p, while the firm’s total dividend rose by 312% to 10.3p.
Both figures were slightly ahead of analysts’ forecasts — and Barratt even threw in a £400m cash return plan, starting with a £100m payment (approx. 10p/share) to shareholders in November 2015.
Despite all of this, Barratt’s share price barely moved when markets opened this morning. This was partly because the figures were broadly in-line with forecasts, but also because Barratt belongs to the crazy world of UK housebuilders, where manic ups and downs are the norm.
Pumping out cash
Today’s results make it clear that Barratt is currently pumping out cash, thanks in part to the government’s Help To Buy scheme.
The firm currently has net cash of £73.1m, compared to net debt of £25.9m at the same point in 2013, despite approving the purchase of 21,478 plots of land last year.
Topping out?
However, beneath the impressive headline figures — such as that 305% increase in earnings per share — the results seemed more measured, and suggest to me that next year’s results might well be pretty flat.
For example, Barratt’s total completions only rose by 8.6% last year, and while the firm’s operating profit rose by 62% to £409.8m, Barratt’s operating margin only rose by 3.3%. This suggests to me that much of the 12.9% increase in average selling price was absorbed by increased costs.
What’s more, Barratt made it clear in its outlook statement that last year’s gains may not be repeatable:
“A return to more normal seasonal trends following exceptionally high levels of activity post the launch of Help to Buy in April 2013”
Is Barratt a buy?
Barratt shares have risen by nearly 500% since the depths of the 2008 crash, but I think the big gains are over.
In my view, the Barratt’s profits and share price are likely to level out over the next couple of years, and may even start to fall.
Shareholders who bought when the shares were cheap can now lock-in their capital gains, or enjoy the extra income from the firm’s cash return programme, which equates to around 40p per share over the next three years.
However, I do not see today’s news as a buying signal for new investors — in my view, it’s simply too late to jump aboard this particular train.