Berkeley's bumper 1 billion pound payout gives UK housebuilders a lift

(Reuters) - Housebuilder Berkeley BKGH.L plans to more than double investor returns to 1 billion pounds ($1.3 billion) over the next two years while ramping up output, signalling increased confidence in the UK market and lifting its shares more than 5%.

FILE PHOTO: A builder working for Taylor Wimpey on construction site in Aylesbury, Britain, February 7, 2017. REUTERS/Eddie Keogh

British house prices, which weakened with the rest of the economy after the 2016 Brexit referendum, last month rose more than 1% in annual terms for the first time in 12 months, according to mortgage lender Nationwide.

However, it also said that continuing uncertainty over the UK’s departure from the European Union is likely to weigh on the market again this year.

Referring to Berkeley’s investor payout pledge, broker Peel Hunt said the confidence to return this additional cash comes from the company’s 20 long-term sites now in construction as well as the recent UK election result, which strengthened the government of Brexiteer leader Boris Johnson.

Shares in Berkeley rose 5.7% to 5,472 pence by 0834 GMT, leading London's blue-chip index .FTSE and also lifting rivals Persimmon PSN.L, Barratt Development BDEV.L and Taylor Wimpey TW.L.

Berkeley, which operates primarily in London, Birmingham and southern England, said that about 500 million pounds will be returned to shareholders in March 2020 and a further 500 million pounds a year later.

Beyond that, the company said it intends to make annual returns of 280 million pounds in half-yearly instalments of 140 million pounds through share buybacks or dividends.

The company, which undertakes major brownfield regeneration projects in London and the South East, said it has bought a number of sites since the end of the financial crisis and a number of these are now in or beginning production.

Berkeley is in the process of bringing forward 25 large residential-led developments and has begun construction on 20 new sites over the past 18 months, it added.

These sites typically deliver between 1,000 and 5,000 homes and their development can take up to 30 years to complete.

“Since 2016 ... Berkeley has been mindful of the volatile operating environment and has been cautious in its investment,” the company said.

“In light of the progress made in bringing forward its new sites, and its assessment of the prevailing operating environment ... Berkeley has reviewed its net cash position and future requirements.”

The company said it has increased its net cash position to more than 1 billion pounds from 107.5 million pounds since 2016.

“The right way to think about today’s surprise announcement is that this represents the return of a precautionary cushion that is no longer required and it does also signal improved confidence in the market,” said Liberum analyst Charlie Campbell.

Reporting by Noor Zainab Hussain in Bengaluru; Editing by David Goodman