Broker move and valuation change
Kepler Cheuvreux has moved to a "reduce" recommendation on Berkeley Group, down from a previous "hold" stance, and cut its target share price by 20.5% to 3,100p from 3,900p. The brokerage cited a renewed rise in mortgage rates, softer demand dynamics and a persistently difficult trading environment across London and the South East as the drivers behind the decision.
Forecast revisions
Alongside the rating change, Kepler trimmed its revenue projection for Berkeley across the 2027-31 period by 22%. The brokerage said this adjustment, when combined with build cost inflation pressures, results in earnings expectations being lowered by more than 30%.
Kepler reduced sales forecasts for the year to April 2027 by 10.3% and for the year to April 2028 by 20%. Adjusted earnings per share estimates were revised down by 13.9% for the year to April 2027 and by 24.5% for the year to April 2028.
Operational metrics and medium-term assumptions
On an operational basis, Berkeley reported a 1% year-on-year increase in completions for fiscal 2026, reaching 4,076 units. The company also recorded an 8% year-on-year decline in average selling price during the same period.
Kepler now assumes completions will be roughly 20% lower across the 2027-31 window compared with prior assumptions, and that average selling prices will run about 1% lower throughout that period.
Cost inflation and sector context
The brokerage noted that Berkeley did not provide a quantified figure for the expected impact of build cost inflation. Kepler highlighted inflationary pressures emerging in the second half of 2026 and continuing into 2027. It said this observation aligns with the broader sector trend, where companies have moved to expect mid-single-digit build cost inflation rather than the previously anticipated low-single digits.
Company targets and shareholder returns
Berkeley has reiterated a £1.4 billion earnings before tax target for the 2027-30 period, which equates to an average of £350 million per year. Kepler pointed out that this average sits below the more than £450 million reported in fiscal 2026.
Kepler said it now assumes Berkeley will pay no dividends. In place of dividends, the brokerage has increased its expectations for share buybacks, forecasting repurchases of £225 million in fiscal 2027 and £200 million in fiscal 2028, followed by a flat annual run-rate of £175 million thereafter.
Balance sheet and financial resilience
Despite the revisions, Kepler indicated it does not expect strain on Berkeley's balance sheet. The brokerage cited the company's cautious approach to land investment and its lower assumptions for shareholder remuneration as factors supporting that view. Net financial debt is forecast by Kepler to be £349 million for the year to April 2027.
Market positioning and demand
Kepler observed that since the onset of the Middle East conflict, Berkeley has been the least penalised stock within its coverage, a result the brokerage attributes to Berkeley's high-end customer base and what it sees as lower sensitivity to mortgage rate moves. Nevertheless, Kepler noted that the company itself has acknowledged a recent moderation in customer interest and reiterated that the outlook for London and the South East remains challenging.
Summary of implications
Kepler's downgrade reflects a combination of softer demand, a rebound in mortgage rates and rising build cost inflation that together have prompted notable downward revisions to revenue, completions and earnings expectations. The brokerage expects fewer completions, slightly lower average selling prices, and has adjusted shareholder return assumptions away from dividends toward buybacks while keeping the balance sheet assessment broadly stable.