UPDATE 2-Property mix and robust demand to double profit for builder Barratt

Thu Jul 10, 2014 9:09am EDT

* Average sale price up 13 pct

* Reflects shift to higher-margin properties

* CEO points to increased activity in all regions

* Macroeconomic concerns still weigh on shares (Adds analyst, further quotes)

By Paul Sandle

LONDON, July 10 (Reuters) - Barratt Developments expects full-year profit to more than double to about 390 million pounds ($664 million), thanks to an increasingly buoyant British housing market and a greater focus on larger homes.

Britain's biggest housebuilder by volume highlighted its strategy shift and improved demand in a trading update trumpeting profit that would comfortably beat analysts' expectations.

The company said it sold 14,838 homes in the year to June 30, with the average price up 13 percent to about 220,000 pounds.

That rise in the average price reflected a shift to bigger family homes from city centre apartments, Barratt said, taking advantage in recent years of opportunities to buy land that can be developed with properties offering higher profit margins.

Barratt joins rivals such as Taylor Wimpey, Bovis and Persimmon in issuing bullish trading statements this month, reflecting a broad recovery in the property market.

Yet shares across the sector have fallen by an average of about 12 percent in recent months, with Numis analysts citing concerns that restrictions on mortgage lending and a rise in interest rates could hit the market.

House prices rose 8.8 percent year on year in the three months to June 30, the fastest annual growth since October 2007, mortgage lender Halifax said on Wednesday.

Barratt Chief Executive Mark Clare said the group's completions were at their highest level for six years and have increased by a third over the past three.

"The recovery has extended beyond London and the South East, and we are seeing increased confidence and activity in all the regional markets," he told Reuters on Thursday.

"We are pleased with our continued success in the land market and are still securing excellent opportunities."

WORRIES REMAIN

Shares in the company, which have fallen 19 percent over the past three months after hitting a six-year high in March, reversed early rises to trade 1.9 percent down at 358 pence by 1228 GMT.

Peel Hunt analyst Clyde Lewis said his forecasts would "edge ahead" next year as a result of the update, even though volume expectations are slightly tempered.

Barratt's average selling price had increased by a little bit more than expected, he said, though the 9 percent rise in volumes was a little less than expected.

"Barratt, like the rest of the sector, has struggled in the past few months and now stands about 20 percent off its 12-month high, despite seeing nothing but upgrades," Lewis added.

The sell-off reflected concerns over the danger of the housing market overheating and likely policy tightening from the Bank of England, but Lewis said he believes that such worries have been overblown.

Barratt's Clare said the group had seen "little or no impact" from tougher mortgage lending guidance.

"Nobody wants house prices to race away," he said. "Affordability is a key measure that we look at, so anything that the Bank of England can do to smooth the cycle is helpful. For us, it's a sensible intervention."

Clare said the strength of the market had enabled the group to meet its target of an 18 percent return on capital employed two years earlier than expected.

Barratt used to achieve sector-leading return on capital, according to analysts at Numis, but the situation changed when it bought Wilson Bowden in 2007.

The group's management has expressed its desire to improve that situation with a high level of forward sales and by purchasing sites where upfront infrastructure costs are minimal, Numis said.

Barratt said forward sales had jumped 44.7 percent to 1.2 billion pounds in the 12 months to June 30 and it expects further significant improvement in the current financial year. The company is due to report official full-year results in September. ($1 = 0.5877 British Pounds) (Editing by David Goodman)

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