By Lee Wild, Head of Equity Strategy at Interactive Investor
Investors who dived into the housebuilding sector after the EU referendum rout have been richly rewarded. Although the shares are worth little more than they were before the result was known, Barratt Developments is up over three-quarters from its ludicrous post-Brexit vote low a year ago.
Barratt, the UK's largest housebuilder, is doing everything right. It bought less land than normal following the referendum, but it has plenty and there's enough around at the right price. All things considered, the business has had a great year.
Completions for the 12 months to June just hit a nine-year high and selling them for more means pre-tax profit of £765m is higher than expected. It's hitting financial and operational targets, remains positive on mortgages and the consumer, and completions should be up again this year, too.
Concerns about an imminent slump in the housing market look overdone, certainly in the near-term. Yes, the London market is weaker, but business remains more buoyant in the regions, and we've seen a slew of positive updates from peers in recent days.
Nowhere near enough homes are being built currently and Help to Buy continues to be a major driver of industry volumes.
Barratt is one of the highest-yielding housebuilders at over 7% and both a PE ratio in single figures and price-to-net asset value of around 1.7 for next year means it's hardly expensive.
There will always be doubts around the sustainability of such generous dividend yields, but company policy is that the payout is covered two and a half times by earnings, so it looks safe for now.