ii view: relief as Redrow reinstates the dividend

Record revenues and return of the dividend are positives, but will the end of the stamp duty break hurt?

First-half results to 27 December

Chief executive Matthew Pratt said:

"The group delivered a strong first-half performance whilst continuing to operate under strict Covid-secure procedures.  During a period of intensive activity to rebuild output, it is pleasing to report we have maintained high levels of customer satisfaction and I am grateful to our teams for their ongoing hard work and commitment during these challenging times."

ii round-up:

UK housebuilder Redrow (LSE:RDW) today reported record half-year revenues and reinstated it dividend payment, as it continued to benefit from pent-up demand from the first national lockdown and the government’s current stamp duty holiday. 

Revenue jumped by a fifth to over £1 billion, while pre-tax profit grew by 11% to £174 million. The stamp duty holiday is due to cease at the end of March, with pending changes in the government’s ‘Help to Buy’ scheme also incentivising buyers to act now rather than later. 

Redrow shares drifted around 3% lower in afternoon trading, having risen by more than 60% since March pandemic lows. Shares for rival mid-cap Crest Nicholson (LSE:CRST) are up by a similar amount, while London-focused Berkeley Group (LSE:BKG) has risen closer to 40%. 

Within the announcement, management called on the government to reform stamp duty, noting that “Ultimately, it penalises those looking to relocate for work or wanting to downsize as part of retirement plans.” Speculation persists that the stamp duty holiday could be extended. 

A declared interim dividend of 6p per share followed an 8% rise in Redrow’s order book to £1.3 billion. It also moved to net cash held of £238 million from debt of over £100 million back in late June. In its last full year prior to the pandemic, Redrow paid a total dividend of 30.5p per share. 

Progress on scaling-back its London operations now includes exiting four of the six sites it had decided not to develop. Demand in the regions for its Heritage homes had proved particularly strong, as more buyers reflected on their lockdown experiences and prioritise space in their homes and access to green areas. 

Private reservations over the last six weeks to early February had averaged £265,000 per outlet per week, down from £298,000 this time last year. That's partly due to reduced availability of product given the current strong forward sales position.

ii view:

Redrow builds homes throughout England and Wales. Its 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 make significant shareholder returns in recent years. But the uncertainty of the pandemic halted dividend and special dividend payments across the industry. 

Now, and with construction disrupted as opposed to stopped under the initial Covid-19 lockdown, builds are being completed. Both a holiday for the payment of stamp duty tax on homes costing up to £500,000, plus pending changes to the ‘Help to Buy’ scheme have motivated house buyers. 

For Redrow investors, a recent slowdown in the value of reservations and scheduled government removal and changes to incentives offer some caution. But, as Milton Friedman once said, “nothing is so permanent as a temporary government programme.” A restarting of the dividend payment and a consensus analyst share price target of 661p offer positives. For now, momentum appears to remain broadly with the company. 

Positives: 

• An 8% increase in the order book to £1.3 billion
• Reinstated the dividend payment

Negatives:

• Ongoing pandemic uncertainty
• A reigning in of government house buyer incentives

The average rating of stock market analysts:

Strong buy