Stock of the day 05/11/2015 – Barratt Developments PLC

It’s been a pretty stellar year for Barratt Developments, yet one that has shown signs of unravelling in the past week.

Can the company nip its nascent decline in the bud with its interim statement next Wednesday?

Like the rest of its house-building peers, Barratt Developments (the largest company in the sector) has seen moments of explosive growth combined with sustained periods of upwards advancement to hit near 8-year highs. Starting the year at £4.68, by the start of July the stock had climbed to £6.40, though since then Barratt has struggled to match the kind of gains it made in the first half of the year.


(Source: IT-Finance.com 05/11/2015)

However, it deftly managed the market chaos of August, with a brief dip below £6 quickly overcome a few days later. More importantly, its start of September full year results allowed it to maintain its post-£6.40 levels. Those results contained a 19% increase in revenue to £3.8 billion alongside a huge jump in pre-tax profits from £391 million to £566 million year-on-year. That growth was prompted by the fact that Barratt completed its largest number of homes since the crisis in 2008, creating a nice bit of symmetry as its full figures helped send the company to a fresh peak of £6.73, its highest price since 2007.

After falling away from that high Barratt spent most of October trading in the £6.40 to £6.50 bracket that was its home for most of the third quarter (barring that aforementioned August dip). However, in the past week the stock has begun to fall; a 3% tumble on the 29th October took it to £6.17, before an update from Liberum Capital on the 3rd November helped send it to a current trading price of £5.78 (IT-Finance.com, 05/11/2015), on the way hitting a 6 and a half month low of £5.68.

That Liberum note labelled the ‘largest housebuilders’ valuations’ as ‘too optimistic’, especially with the house price inflation that has been such a boon to the sector expected to come under pressure from a ‘more vigilant regulator’. Yet so long as there is such an imbalance between home supply and demand signs of a continued strong performance in revenue and actual house-building could attract those investors that had abandoned Barratt back to the stock following its interim statement.

Barratt Developments has a consensus rating of ‘Hold’ with an average target price of £5.90.