Berkeley plans to make hay from housebuilder woes

Berkeley Group is planning a £300m spending spree to snap up rival housebuilders' land on the cheap...

Last Updated: 31 Aug 2010

Housebuilder Berkeley Group said today that it had raised £50m by selling new shares – as a result of which it now has a war-chest of about £300m available to spend on acquisitions. Berkeley, recently named in MT’s annual survey as Britain’s Most Admired Company in the home construction sector, seems to be coping with the industry’s current woes better than most. And now it has the firepower to take advantage of its rivals’ misfortunes, by buying their land at cut-price rates, it might actually end up profiting from the downturn…

There’s no question that this is an unprecedented period of turmoil for housebuilders. The decline in the housing market has been well-documented – this morning Nationwide reported another 1.8% decline in prices in February, amounting to a year-on-year drop of 17.6%. With people struggling to get mortgages and worried about their jobs, housebuilders’ sales have dried up substantially, resulting in thousands of workers getting the chop across the industry.

Berkeley hasn’t been immune to this turmoil, of course: sales reservations are 55% down on its historic average, which is a pretty major decline for any company to deal with. However, it seems to be weathering the storm in a way that its rivals have not: boss Tony Pidgley said today that it had almost £240m in the bank at the end of last month, up from £138m in October – largely because it’s been watching the pennies carefully (not to mention some well-timed sales before the market took a tumble). And its land bank still looks healthy: it’s not expecting any further write-downs when it reports its full-year results in April. Add in the extra £50m raised via this share placement, and its financial position actually looks pretty robust.

Berkeley thinks this all adds up to a big opportunity. ‘For Berkeley, this means acquiring land opportunities at the right prices, and using its added value developer expertise to optimise these sites and so enhance value for shareholders,’ the company said this morning. In other words: we’re going shopping…

The only bad news for shareholders was that it’s decided as a result to scrap its pledge to pay a £3-per-share dividend by 2014. But if this land-buying policy works, allowing Berkeley to grab market share from less well-financed rivals, they should end up a lot better off in the long run...

In today's bulletin:

RBS slumps to record loss - and Sir Fred gets £650k pension
British Gas fails to profit from higher prices
Berkeley plans to make hay from housebuilder woes
SMEs' unhealthy desire for Fry and Sugar
Why small businesses need strategy more than ever

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