ii view: Redrow profit impresses

Revenue up and a restarted final dividend but an expectation for a return to more normal sales rates. 

Full-year results to 27 June

• Revenue up 45% to £1.94 billion
• Pre-tax profit up 134% to £314 million
• Net cash of £160 million from debt of £126 million
• Total order book up £10 million to £1.43 billion
• Final dividend of 18.5p per share (2020; nil)

Chairman John Tutte said:

"Against a background of much uncertainty at the start of the financial year, I am delighted to be able to report the Group delivered an excellent performance in the year to the end of June 2021 with better than expected results.

“The buoyant housing market has moderated in recent months and we anticipate sales rates will return to historically average rates over the course of the current financial year. It is on this basis we have planned for the future and we are confident our timely investment in land, combined with strong demand for our Heritage homes, will support our longer-term growth aspirations.”

ii round-up:

Mid-sized housebuilder Redrow (LSE:RDW) today reported a more than doubling in pre-tax profit as build completions recovered from lockdown hit 2020 levels to hit 5,620 from last year’s 4,032. 

Revenue climbed 45% to £1.94 billion, although remained 8% below 2019’s pre-Covid £2.11 billion total, with management flagging some moderation in the buoyant housing market over recent months. It expects a return to ‘historical average’ sales rates over the current financial year. 

Redrow shares were little changed in UK trading, having more than doubled since pandemic lows in March 2020. Shares for smaller rival Crest Nicholson (LSE:CRST) are up by a similar amount, while shares for seller of London homes to travel hindered overseas buyers Berkeley Group (LSE:BKG) are up by around 50%.

Redrow previously sold its London operations to focus on the regions, including a new southern division.

A sales rate of 0.66 over the first 11 weeks of the new financial year contrasted with the 0.84 level seen the same time last year. However, management flagged the ending of lockdowns and the launch of the government's temporary stamp duty holiday as exceptional factors buoying the 2020 performance.

Management guidance for the current 2022 full year pointed to revenue of £2.05 billion, while new mid-term 2024 estimates saw group revenue rising to more than £2.2 billion, with earnings per share of over 90p. That’s up from 2021’s 73.7p and potentially similar to 2019’s 92.3p.  

A restarted final dividend of 18.5p makes for a 2021 total of 24.5p per share. Still down from 2019’s total of 30.5p per share. 

The housebuilder ended the year with net cash of £160 million compared to the prior year’s net debt position of £126 million. The order book totalled £1.43 billion, marginally higher than last year’s £1.42 billion. 

ii view:

Started in 1974 as a small civil engineering concern in North Wales, Redrow today builds homes throughout England and Wales. Its product range is focused on traditional family housing. Half-year results announced in mid-February saw Redrow recommencing the dividend payment following its halting under the pandemic.  

For investors, rising build cost inflation, as reported by rivals such as Persimmon (LSE:PSN), need to be considered. So does an uncertain economic outlook and UK government finances considerably more stretched than before the pandemic. 

But demand for new housing remains generally robust, cost material inflation is being countered by rising selling prices, and the government has repeatedly shown its appetite to support the housebuilding industry if and when times get tough. For now, and with net cash replacing debt and the shares sat on a historic and estimated future dividend yield of over 3%, reasons for long-term optimism remain.  

Positives: 

• Focused region builder having sold London sites
• Dividend payment recommenced

Negatives:

• Ongoing economic uncertainty
• Rising raw material prices

The average rating of stock market analysts:

Strong buy