ii view: headwinds increasing for housebuilder Barratt Redrow

First-half results to 28 December

• Revenue up 10.5% to £2.63 billion
• Adjusted pre-tax profit down 13.6% to £199.9 million
• Interim dividend of 5p per share, down from 5.5p per share the previous year
• Net cash held of £173.9 million, down from £458.9 million a year ago

Guidance:

• Continues to expect build completion for this financial year of between 17,200 and 17,800
• Continues to target medium-term annual build completions of 22,000 homes

Chief Executive David Thomas said:

"During the first half we delivered a resilient performance in a subdued market while making strong progress integrating Redrow. As that integration nears completion, our focus is on disciplined execution. We are embedding our proven operating model across the enlarged group, delivering operational excellence, strengthening efficiency, and positioning Barratt Redrow to deliver volume growth, margin progression, and capital returns through the cycle.

"With a strong land bank, solid forward sales and synergy delivery in line with our targets, we are well positioned to deliver sustainable medium-term growth. However, while progress made on planning reform is encouraging, a stable and supportive demand environment is essential to enable increased delivery at scale across the sector."

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ii round-up:

Housebuilder Barratt Redrow (LSE:BTRW) builds nationwide, completing 16565 over its last financial year to late June. 

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 11 February, 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 more than 30 UK housebuilding divisions with the capacity to deliver 22,000 homes per annum in the medium term. A stock market value of £4.3 billion puts it ahead of rivals Persimmon (LSE:PSN), Berkeley Group Holdings (The) (LSE:BKG) and Taylor Wimpey (LSE:TW.) with values all at under £4 billion.  

For investors, management’s estimate of build cost inflation of 2% for the current year may now potentially increase given the higher energy prices following war in the Middle East. Previously hoped for cuts in interest rates could even turn to hikes given the possible impact of higher energy prices on inflation, with likely negative consequences for customer demand. A forecast price/earnings (PE) ratio above the 10-year average may suggest the share are not obviously cheap, while elevated borrowing for the UK government may prevent the implementation of buyer incentive schemes as we've seen in the past. 

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To the upside, targeted cost savings of £100 million following the merger with Redrow may help offset a possible acceleration in build cost inflation. Forward sales to the value of £3.4 billion is a modest increase from £3.35 billion a year ago and suggests at least stable demand. The government’s promise to ease planning regulations is ongoing, while the group’s more recent announcement of a new chief executive from the final quarter of 2026 demonstrates management succession planning. 

In all, raised cost and interest rate outlook uncertainty are reason for greater caution. However, the recent slump in share price to levels not seen since 2013 may catch the eye of bargain hunters with a higher appetite for risk.  

Positives: 

• Offers regional UK geographical diversity
• Targeting cost savings

Negatives:

• Uncertain economic outlook
• Reduced net cash held 

The average rating of stock market analysts:

Buy