July 10, 2019 / 6:15 AM / 6 months ago

Homebuilder Barratt to beat profit view as cost control efforts pay off

(Reuters) - Barratt Developments’ (BDEV.L) efforts to cut costs by making changes to the design of the houses it builds will help the company to report annual profit that beats market expectations, the company said on Wednesday.

FILE PHOTO: A company logo is seen on the side of a house at a Barratt Homes housing development near Preston, Britain, October 9, 2017. REUTERS/Phil Noble

The company has also been reducing its exposure to central London in order to focus on outer parts of the capital where houses are more affordable for many Britons.

Britain’s biggest housebuilder expects pretax profit of 910 million pounds for the period ended June 30, compared with 835 million pounds a year earlier.

Analysts on average expected full-year pretax profit of 883 million pounds, according to company compiled estimates.

“The main initiative has been to redesign and simplify our housing range,” Chief Executive Officer David Thomas told Reuters on a call.

“Back in 2016, we substantially reduced the number of house types. We reduced the roof pitch and height of the house. By doing that we were reducing the cost of build,” he added.

Thomas told Reuters he expected the company to exit central London by the end of the calendar year.

Barratt’s push to redesign its houses helped it guide to an operating margin of 18.9% for the year, up from 17.7% a year earlier.

Shares in Barratt, which have surged nearly 25% this year, gained as much as 1.4% on Wednesday, and nudged stocks of rival housebuilders higher on the blue-chip index.

“Barratt’s profitability is improving as it dials down exposure to a tricky London market, but it is worth noting that its margins are still running behind most of its peers,” said Russ Mould, investment director at AJ Bell.

Last month, blue-chip homebuilder Berkeley’s (BKGH.L) annual profit fell less than feared. On Tuesday, Bovis Homes BVS.L forecast higher first-half profit as it sold more affordable homes.

(For a graphic on 'Share performance of blue-chip UK homebuilders', click here tmsnrt.rs/2G3nW1q)

Reporting by Samantha Machado in Bengaluru and additional writing by Noor Zainab Hussain; Editing by Arun Koyyur and Keith Weir

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