Berkeley has called on its shareholders for £50m of new funds. That will lift its cash pile to a total figure of £300m and the plan is to spend most of that on snapping up additional land as today’s bargain prices represent an opportunity that is too good to miss.
As Barrett and Taylor Wimpey struggle to survive, burdened by excessive borrowings, Berkeley is sitting on a much different perch – it has no debt at all.
Tony Pidgley, managing director of Berkeley, has won a reputation for out-guessing the peaks and troughs of the sector thanks, basically, to his vision of it being highly cyclical.
Today’s announcement shows, once again, that he is good one step ahead of the field as while others struggle he is already preparing to capitalise on their weakness.
Berkeley wants to build up a bigger cash pile to “enable the group to take advantage of current market conditions by investing in land”.
Berkeley says that it has a “strong” balance sheet and net cash at £240m is “very strong”.
Remarkably (given the tales of woes coming from other house builders) there were no land write-downs at 31 October 2008 and none are forecast as at the 30 April 2009 year-end.
Trading volumes, however, are not immune to the general economics of the UK and Berkeley’s sales reservations are currently 55% below the historic average.
The plan announced today will see Berkeley printing off 6m new shares, selling them at a price that will generate £50m of spare cash for the land-buying spree.
Berkeley currently holds 30,000 plots in its land bank. It values its assets as being worth about £6 per share. On top of that is the current pile of ready cash.
The group “has been very selective” on new land acquisitions of late - since 1 May 2008 it has committed only £21m to additional land.
Pidgley said: “The current market weakness presents exceptional value creation opportunities.”
Seeing the writing on the wall ahead well before the rest of the pack, Pidgley flogged off Crosby Homes, its conventional house building division that was essentially based on wading into greenfield sites, to its management back in 2003. That move netted £250m.
As part of the Crosby deal, he told shareholders the remaining group would become an urban regeneration specialist based on brownfield sites.
But it had become so cash-rich that they could have loads of money back… and to date they have had £1.1bn returned.
That money-back gravy train is still rolling. There is still the promise of another £3 a share to come.
However that has been put on hold as the current market conditions present an opportunity that Berkeley sees as being too good to miss.