Berkeley Group - Best in Class

Berkeley Group (BKG.L): The London residential property market is driven by two big forces. One force is the flow of foreign buyers, that may ebb and flow, but shows no sign of stopping. Whilst you and I may feel that London prices are daft, that is not how it seems to someone wanting prime property in a safe environment bound by excellent legal and fiscal rules. The other force is the steady growth of the London population, which is past 8m and headed for 10m. The outcome of the remarkable recent refugee/migrant events in Europe is unknown. However, significant net immigration will continue and London will remain an economic magnet for many. Their economic power may not be great at first, but they will underpin the ‘cheaper’ end of the property market through rentals, thus helping to prop up the valuations of bread and butter properties. Berkeley Group operates at the upper end of the London residential building market and most people would agree that it is the best in the business. Today’s AGM statement is reassuring, with transaction levels and cash due on forward sales steady, in the wake of what was a good General Election outcome for them. They continue to expect to generate £2bn of aggregate earnings over the three years to April 2018. The balance sheet remains very strong, with the group expecting to be ungeared even after the £122.9m dividend (90p per share) due to be paid on 17^th September.

The group is very explicit on their dividend policy. That imminent 90p dividend means that the first 434p milestone on the route to £13 in total by 2021 has been reached. The next 433p is due by September 2018 and the final 433p by 2021. The guidance is that the next milestone will be achieved through “regular equal dividends over the period”. There is also the vague possibility that any surplus capital generated may come back through enhanced dividend payments. For now though, let’s stick with 433p over three years being 144.3p per year (so down on the 180p in each of FY2014 and FY2015). On consensus eps of 245p the PE at 3450p is 14.1x and the yield is 4.2%. I have to say that these dividend flows are a succession of quasi specials, so they do not quite fit my usual aim of identifying growing dividends driven by growing operational earnings and cash generation. That said, Berkeley Group is unique and even after a 40%-odd share price rise in the last year, this is still the best in class at what it does. You may want to finesse an entry price, but the attractions of the stock are still very alluring. (Neil Cumming^, 8^th September  2015)

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about. www.dividendpower.co.uk or e-mail at info@dividendpower.co.uk  Twitter:  @DividendPower