ii view: confident Redrow targets sites outside London

Early year trading has started well, with a hoped-for restart of the dividend still on track. 

Early year trading for the 18 weeks to 30 October

• Net private reservations up 5% to £630 million
• Forward order book up 10% to £1.5 billion
• Net cash of £115 million - up from net debt of £32 million

Executive chairman John Tutte said:

"We entered the new financial year in a position of strength and this has been reinforced with strong trading since the start of the year. There has been resolute demand for homes with more space to live and work as customers reflect on their lockdown experiences.”

ii round-up:

Mid-cap housebuilder Redrow (LSE:RDW) pointed to strong trading in the early weeks of its new financial year, underpinning its continued hopes to restart dividend payments come its pending half-year results. 

The value of net private reservations for the 18-week period rose by 5% to £630 million compared to last year. And by 17% in the regions, where it is now looking to concentrate investment at the expense of London. Management believes these areas are better suited to its family home heritage product which generate higher returns. 

Redrow shares rose by more than 4% in UK trading, leaving them down just under 40% year-to-date. Shares for the UK’s biggest housebuilder by market value Persimmon (LSE:PSN) are down less than 5% in 2020, while both Barratt Developments (LSE:BDEV) and Taylor Wimpey (LSE:TW.) have fallen by more than a quarter. 

Pricing had stayed firm, with modest gains in the regions. The average selling price of private reservations for the period rose by 2% year-over-year to £396,000. Progress on scaling-back its London operations now includes exiting three of the six sites it had decided not to develop. Total nationwide site numbers stand at 116, down from a previous 125. 

Sales offices will remain open during the latest lockdown, except in Wales given current restrictions. Falls in build completions under the first lockdown saw profit for the last financial year to the end of June fall by 66% to £140 million. 

Group net cash at the end of October stood at £115 million, up from net debt of £32 million the year before, aided by the suspension of the dividend payment. In its last full year prior to the pandemic, Redrow paid a total dividend of 30.5p per share. 

ii view:

Redrow builds homes throughout England and Wales. Its product range is focused on traditional family housing for its regional businesses and apartment schemes in Greater London. Both rising house and land prices have helped housebuilders to make significant shareholder returns in recent years. At the turn of the year, housebuilder dividend yields at or close to double digits were not uncommon. Now, Covid-19 has seen companies across the sector suspending payments. 

For Redrow, the halting of the dividend payment has removed a core attraction. Renewed lockdowns and the impact on buyer demand are also now to be quantified. But the government has once again proved its support for the sector, delivering a stamp duty holiday, while this latest reservation data appears to evidence continued firm demand for new housing.  

Positives: 

• Forward order book close to record levels at £1.5 billion
• Hoping to restart the dividend

Negatives:

• Second lockdown uncertainty
• A downgrading of the help-to-buy scheme in 2021

The average rating of stock market analysts:

Buy