Barratt Redrow shares extend five-week slump to 25%

After peaking above 485p early June, this housebuilder is now trading at prices not seen since autumn 2022. ii's head of markets explains the latest drop following this full-year trading update.

14th July 2025 21:03

by Richard Hunter from interactive investor

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Barratt Redrow (LSE:BTRW) is navigating its current strategy with caution amid a sector which is clearly being buffeted by wider economic concerns.

Indeed, the group is hoping that it is now at an inflection point, with its confidence in future prospects bolstered by the Redrow acquisition, such as providing access to the more affluent market in which Redrow tends to operate.

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At the same time, early synergies previously resulted in the group upping estimates for cost savings of £100 million by year three from a previous £90 million, and these savings are ahead of schedule with £69 million already completed. In addition, a combined land pipeline of over 92,000 plots and an intent to deliver around 22,000 homes per annum in the medium term remains in place, with complementary geographical footprints adding a further intriguing dimension to the deal.

There are, however, some warning signals which are to a large extent out of the group’s control. Consumer caution and affordability issues are a headwind for the sector, particularly given the possibility of more tax rises to come. The impending difficulties which the consumer will face, in part to the measures announced in the Budget, could temper demand and indeed affordability, as the group is currently encountering in the affordable home sales segment.

There is also a concerning trend within the group’s London market, where demand is currently weak, with fewer international and indeed domestic investor completions dragging down the group total by 7.8% to 16,565 homes in the period.

More positively, the total average selling price has increased from £323,000 to £344,000, perhaps partly due to the higher end nature of Redrow sales, and in any event a welcome development for margins. A strong forward order book of £2.9 billion is 10.5% higher than the corresponding period, and the significant growth in approved plots from 12,439 to 22,530 signals a landbank which is ready to be unleashed.

The cash generative nature of the business is also flowing through to shareholder returns, with the announcement of a £100 million share buyback programme which is intended to represent the beginning of an annual exercise. In addition, the dividend (following a near-halving of the payment last June) still yields 4.2% which is perfectly attractive by any standards. These measures come despite the decrease in net cash to £772 million from £1.16 billion, partly due to the dividend payment but also reflecting further land investment and acquisition costs.

More relief for the sector came last week with the announcement from the Competition and Markets Authority that its concerns into housebuilding pricing would now be satisfied by a contribution of £100 million from seven UK housebuilders, of which Barratts will pay the containable sum of £29 million. More importantly, the judgement removes the sector overhang which the investigation had brought.

In terms of outlook, adjusted pre-tax profit should to be in line with estimates, and the group has upped its expected completions for next year to a range of 172,00 to 17,800 homes, en route to its medium-term target of 22,000 homes per year, which is a strong position. The possibility of interest rate deductions, true planning reforms and the remaining under-supply of homes in the UK are all factors which should eventually lift all boats in the sector.

Much of the caution overhanging the housebuilders is based on an uncertain economic outlook in the UK, and those challenges will continue to present themselves. In addition, the group’s cautionary notes especially on the London property market have handed the reins to the bears today.

A share price decline of 10% or more this morning adds to a drop of 16% over the last year, as compared to a gain of 10% for the wider FTSE100. Barratt shares have now fallen from around 485p on 11 June to 362.5p Tuesday. This leaves the shares on an undemanding valuation, although investors have been shaken rather than stirred on their previous conviction that there was much to go for. As such, the market consensus of Barratt Redrow as a buy could come under some pressure should this update lead to material downgrades.

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