Berkeley Group shares are -4.5% this morning after the housebuilder delivered an effective profits warning for 2019+, indicating 30% lower net profits. This comes in spite of upbeat FY 2018 results, with net profits +15.1% at £934m (estimate beat), with flat revenue (£2.7b) in-line with expectations.

Despite solid 2018 numbers, the real message from the housebuilder was that current results represented a peak, with net profits expected to come down to “more normal levels” in 2019. With Berkeley Group indicating that this “normal” level is 30% lower than 2018 results, it is no wonder that markets are taking a pessimistic view.

At a time when housebuilders are delivering one profits warning after another (McCarthy & Stone, Crest Nicholson), investors are quite rightly factoring in a less profitable future.

With Berkeley’s average property selling price increasing from £675K to £715K this year, is the more well-off customer profile sustainable going forward? With the London market (most expensive in the country) considerably weaker, as many funders and builders are leaving due to higher input costs and Brexit risks, it makes sense for next year’s net profits to come one-third lower. With even the most financially stable of housebuilders worried about future profits, do even bleaker times lie ahead for the rest of the sector?

Artjom Hatsaturjants, Research Analyst, 20 June 2018