ii view: Barratt Redrow confident despite limited growth

Full-year results to 29 June

• Revenue up 33.8% to £5.58 billion
• Adjusted pre-tax profit up 27% to £591.6 million
• Final dividend of 12.1p per share
• Total dividend for the year up 8.6% to 17.6p per share
• Net cash held down 11% to £772 million

Guidance:

• Expects build completion for the full year ahead of between 17,200 and 17,800, up from 16,565 homes during the year just gone
• Continues to target medium-term annual build completions of 22,000 homes 

Chief Executive David Thomas said:

“We have delivered a solid performance in a tough market, with adjusted profits ahead of expectations despite home completions coming in slightly below our guided range. 

"While the housing market remains challenging and we anticipate limited growth in FY26, the long-term fundamentals of the sector remain compelling. In the meantime, it is vital that government policy is focused on reforming the planning system, removing barriers to investment and supporting purchasers, particularly first-time buyers, if the sector is to build the homes the country needs."

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ii round-up:

Housebuilder Barratt Redrow (LSE:BTRW) builds nationwide, employing over 7,500 people. 

Following a £2.5 billion merger of the former Barratt Developments and Redrow, the FTSE 100 company now operates across the four brands of Barratt Homes, David Wilson, Barratt London and Redrow. 

Roofs are made by its own Oregon Timber Frames via factories in Derby and Selkirk, Scotland.

Commercial builds for retail, leisure, office, industrial and mixed-use schemes are made under the business Wilson Bowden banner. 

For a round-up of these latest results announced on 17 September, please click here.

ii view:

Barratt was started in 1958 and Redrow in 1974. Now headquartered in Coalville, Leicestershire, the newly formed company operates across 32 UK housebuilding divisions with the capacity to deliver 22,000 homes per annum in the medium term. A stock market value of £5.5 billion puts it comfortably ahead of rivals Taylor Wimpey (LSE:TW.), Berkeley Group Holdings (The) (LSE:BKG) and Persimmon (LSE:PSN) with values all at under £4 billion.  

For investors, an uncertain outlook given potential tax rises at the UK Autumn Budget cannot be overlooked. Promised government planning reforms have yet to materialise, at least in the London area where supply is short. Build cost inflation of 1% to 2% for the year ahead is predicted by management, while a forward price/earnings (PE) ratio in line with the three-year average and above the 10-year average may suggest the shares are not obviously cheap.

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More favourably, cost savings due to the merger have to date exceeded prior expectations, with further savings of £35 million hoped for over the current financial year. Group net cash held of more than £700 million points to a robust balance sheet. Predictions for further UK interest rate cuts should prove supportive of future customer demand, while the government’s targeting of easier planning regulations persists.  

On balance, and while some caution looks sensible given potential tax rises, a consensus analyst fair value estimate above 510p per share and a forecast dividend yield of around 4% offer grounds for optimism longer term.

Positives: 

• Offers regional UK geographical diversity
• Targeting cost savings

Negatives:

• Uncertain economic outlook
• Sector competition 

The average rating of stock market analysts:

Buy