Happy Chinese New Year
Our New Year special promotion is available now.
Market News & Analysis
Barratt relief hinges on Brexit
Ken Odeluga February 6, 2019 7:53 PM
Let’s call Barratt Developments’ 22% rise since the beginning of the year a long relief rally.
‘Relief’ by any other name
In context, the stock’s 4% advance on Wednesday doesn’t look like just relief. Shares were already up 18% since early January. Investors have been pricing in a favourable look for the half-year that ended on 31st December 2018 after a clutch of rivals reported pleasing completions and stable prices in the preceding weeks. Still, whilst solid, Barratt’s H1 wasn’t stellar. So, the shares do appear to reflect a measure of satisfaction that Britain’s largest residential developer maintained its typical sure-footed performance in the last half-year before Brexit.
Developers buoyed on Brexit hopes
Relief is usually a short-lived emotion though. With not much more to buy beyond vindicated expectations, the risk to the shares is toppy behaviour over the next few weeks. The convergence by Brussels and London towards a delayed Brexit could continue to buffer property shares and those in other UK sectors widely seen as exposed to the UK’s EU departure. But as repeatedly observed, such underpinnings are hardly stable. With Barratt shares up by a fifth in just five weeks, a pullback would not surprise.
Whilst moderate progress across main metrics is being applauded – including a 4.1% rise in completions around the midpoint of BDEV's annual target range – softer details should cap sentiment from here. Chiefly, average selling prices were down 1.8% in the main category and even more, 3%, on affordable homes. Barratt makes no attempt to rebut the appearance of a continuing trend. Earlier-stage data were also adrift: net private reservations were 0.64 per week from 0.68 at H1 2017. Softer still, the affordable category rose 1.3 percentage points faster than 'private'. Further upstream, gross land margin was up 200bp to 22.6% but remained short of the 23% medium-term target. With Barratt otherwise already firing on all cylinders, feasibility of the medium-term target is beginning to look questionable.
Strong, but exposed
There’s nothing here to upset guidance, which passes interims intact. Barratt’s dividend rise also meets expectations. Furthermore, we don’t underestimate the scope for upside across the group in the event of a more benign input from Brexit than worst fears. At this stage though, we suspect investors would prefer if the most exposed residential developer was heading into the next few months with more leeway relative to baseline expectations.
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.
Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.
Cryptocurrencies are not legal tender currency and trading of derivatives on Cryptocurrencies are currently not covered under any regulatory regime in Singapore. Consequently, investors should be aware they do not have protection under the Securities and Futures Act (Cap. 289). Please ensure that you are fully aware of the risks.