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The market dislikes nothing more than uncertainty. So, on news that CEO Rob Perrins is to leave the role, it’s no surprise that The Berkeley Group (LSE:BKG) is one of the FTSE 100‘s worst performing stocks in the past 24 hours.
In a release on Friday (20 June), the housebuilder announced the long-standing chief executive will move over to become chair on 5 September. He will replace Michael Dobson, who has held the role for the last three years.
The merry-go-round will also see Richard Stearns, Berkeley’s chief financial officer since 2015, take over from Perrins in the autumn.
Continuation plan
Regarding Stearn’s appointment, Berkeley was upbeat, commenting that the incoming CEO
Has a strong understanding of the industry and Berkeley’s business model. His appointment will uphold Berkeley’s longstanding tradition and preference for promoting from within which maintains the culture and values of the organisation and provides continuity and stability for the Company, our people and shareholders
Yet, it’s not surprising investors’ nerves are rattled by the departure. Perrins has been chief executive for 16 years. The change is especially sensitive as it comes just after the company launched its Berkeley 2035 10-year growth strategy in December.
Berkeley’s share price sank 8% on the news. Has the market overreacted, though?
Safe pair of hands?
As with all chief executive appointments, only time will tell. What’s encouraging, however, is that Berkeley’s new chief executive is another company veteran. Stearns first joined the business in 2002, and he understands the company inside and out.
Indeed, Stearns’ journey echoes that of the man he is set to replace. Perrins held the role of CFO for eight years before becoming chief executive in 2009.
On top of this, Stearns is taking over amid signs that the housing market is on course for a strong and sustained recovery.
Berkeley’s full-year financials, also released Friday, showed revenues rise 0.9% in the 12 months to April. Property deliveries (including joint ventures) increased to 4,329 from 3,927 the prior year, while average asking prices dropped to £593,000 from £664,000.
Pre-tax profits dipped 5.1%, however. But things could be looking up for the FTSE builder as buyer affordability improves.
Three-quarters of sales have already been secured for the new year, it said yesterday. And despite the poor outlook for the UK economy, reservations could keep climbing if (as expected) falling inflation prompts the Bank of England to keep slashing rates.
Value for money
Following Friday’s price drop, Berkeley shares offer attractive value for money in my view. Its price-to-book (P/B) ratio of 1.1 times sits just above the conventional value watermark of one. But this is still well below the company’s 10-year average of around 1.6.
There are risks given the change of chief executive and the broader economic environment. But I feel it’s still a strong FTSE stock to consider as population growth supercharges demand for housing, and its Berkeley 2035 strategy boosts newbuild output and exposure to the white-hot rentals sector.
