Berkeley Group: Relative Order Book Strength Appeals To Investors Amid U.K. Housing Downturn

We make no change to our outlook or financial estimates for Berkeley Group Holdings BKG, which reaffirmed its pretax profit guidance of at least GBP 1.05 billion over the fiscal 2024-25 period. We continue to forecast fiscal 2024 pretax profit of GBP 567 million, with Berkeley expecting earnings over the coming two fiscal years to be modestly weighted to fiscal 2024.

Berkeley’s forward order book remains enviable in early fiscal 2024. This is particularly the case given the soured conditions in the U.K.’s housing market that are bringing homebuilder earnings under significant near-term pressure. Berkeley Group is 90% forward sold for fiscal 2024, ostensibly explained by the popularity of its somewhat unique brownfield redevelopment projects and the extent of constrained supply in the London and Southeast England real estate markets where the group is active. Consequently, Berkeley Group’s forward order position compares favorably with its major U.K. homebuilder peers such as no-moat Barratt Developments which—for context—currently finds itself only approximately 50% forward sold for fiscal 2024.

Nonetheless, we think investors already appreciate the relative strength and consequent earnings visibility that Berkeley Group’s forward order book affords it amid challenging U.K. housing conditions. As a result, Berkeley Group shares screen as least undervalued among our U.K. homebuilder coverage, trading at an 18% discount to our unchanged GBX 4,800 fair value estimate. No-moat Persimmon remains our top pick among the U.K. homebuilders, which we think offers superior upside potential from its presently depressed share price.