ii view: what to do with Barratt Redrow shares?

Full-year results to 28 June

• Revenue up 6.6% to £6.06 billion
• Adjusted pre-tax profit down 7.1% to £572.8 million
• Net cash held of £773 million, little changed from a year ago
• Final dividend of 1p per share, down from 12.1p per share a year ago
• Share buybacks for the year of £100 million

Guidance:

• Now expects build completions for the year ahead of between 17,500 and 17,900, down from a previous 17,700-18,200
• New £386 million share buyback for the new 2027 financial year ahead

Retiring chief executive David Thomas said:

"In a tough market, we have driven a strong operational and financial performance, delivering 17,667 homes, ahead of last year, and adjusted profit before tax in line with market expectations.

“Alongside the delivery of planned synergies, the successful integration of Redrow has created a more efficient and agile business.

“Looking ahead, whilst the wider economic backdrop remains uncertain, we are focused on maximising the strength of our three differentiated brands, maintaining our disciplined approach to costs and capital allocation, and continuing to deliver for customers, communities and shareholders."

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ii round-up:

Housebuilder Barratt Redrow (LSE:BTRW) builds nationwide, completing 17,667 homes this latest financial year, up from 16,565 the year before.

Following a previous £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.

For a round-up of these latest results announced on 16 September, please click here.

ii view:

Started in 1958 and headquartered in Coalville, Leicestershire, Barratt Redrow today employs more than 7,500 people. It previously expressed an ambition to raise annual build completions over the medium-term to around 22,000. Rivals include Persimmon (LSE:PSN), Berkeley Group Holdings (The) (LSE:BKG) and Taylor Wimpey (LSE:TW.).

For investors, a tough outlook for the industry includes possible interest rate rises and challenges in planning applications. Buyer incentives have seen profit margins pressured, with elevated energy prices now feeding into building material costs which squeeze profits further. Fire safety remediation issues relating to its apartment blocks have not completely gone away. A class action in respect of anti-competitive behaviour that seeks £4.5 billion of compensation from seven housebuilders, including Barratt, persists. A move to prioritise more flexible share buybacks over dividends now puts the shares on a forecast yield of just 0.3%versus more than 3.5% at the first-half results.

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On the upside, a new industry-wide government support scheme is now in the pipeline, although details are yet to be fleshed out. A previous ‘Help to Buy’ scheme is estimated to have driven a one-third increase in build completions during its first five years. The government’s target to ease planning regulations is ongoing. Net cash held indicates a robust balance sheet, while the returning of nearly £3.5 billion to shareholders over the last 10 years via dividends and share buybacks demonstrates management’s focus on shareholder returns.

A discounted valuation implied by an estimated tangible net asset value (NAV) of 439.8p per share, had already got investors interested in Barratt. Clearly, the new government initiative has generated further excitement across this cyclical sector, and it could indeed be a very valuable driver for the industry. However, share prices have risen sharply very quickly, and the details of the government scheme are yet to be revealed. Once they are, we'll get a better idea of how big an impact it will have on sector profits. 

Positives:

• Offers regional UK geographical diversity
• Exposure to first-time buyers

Negatives:

• Uncertain economic outlook
• Reduced dividend pay-out

The average rating of stock market analysts:

Buy