ii view: Barratt Redrow nearly finished operational merger

Third-quarter trading update to 30 March

• Continues to expect full-year home builds of between 16,800 and 17,200
• Continues to expect merger cost savings of £100 million

Chief Executive David Thomas said:

“In addition to realising the power of our differentiated brands, we are also focused on unlocking the full potential of our enhanced land position. This has been further supported by the government's proposed planning reforms.

“The fundamentals for our industry remain strong, with a clear need for new homes across all tenures and a national focus on accelerating delivery. We have the scale, industry partnerships and unrivalled credentials in quality, service and sustainability required to capture the opportunities ahead and deliver growth."

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ii round-up:

Barratt Redrow (LSE:BTRW) said today it has nearly completed its merger, with the housebuilder on track to complete home builds of between 16,800 and 17,200 this financial year.

Adjusted sales, or net private reservations per site for the third quarter to 30 March rose 1.6% year-over-year to a rate of 0.62 per week. The builder said it is on track to achieve its previously increased target of £100 million in merger cost savings.

Shares in the FTSE 100 company rose 1.5% in UK trading having come into this latest new down 3% year to date. That’s similar to rivals Bellway (LSE:BWY) and Crest Nicholson Holdings (LSE:CRST) and marginally ahead of a near 1% fall for the FTSE 100 index in 2025.

Redrow’s integration into the former Barratt Developments has seen five divisional office closures already made with a further four ongoing.   

Build completions during the third quarter totalled 3,717, bringing home builds year to date to 10,563. Forward sales to a value of £3.34 billion leave 93% of completions already sold. 

The housebuilder flagged net cash held as at 30 March of £508 million, with the position as of the year end expected to come in at £500-600 million. 

Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares following the news, highlighting the housebuilder as a ‘top pick.’

A full-year trading update is scheduled for 15 July with annual results following on 17 September. 

ii view:

Barratt was started in 1958 and Redrow in 1974. Today the recently merged companies will operate across 32 UK housebuilding divisions with the capacity to deliver 22,000 homes per annum in the medium term. 

For investors, a highly uncertain economic outlook including a potential global trade war, sticky inflation and rising UK taxes, could hinder future potential customers. Unlike rival Persimmon (LSE:PSN), Barratt Redrow does not make its own materials, leaving it more vulnerable to rising costs, while a forecast price/earnings (PE) ratio above the three- and ten-year averages may suggest the shares are not obviously cheap.

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On the upside, the newly enlarged company adds scale, with cost savings expected. A UK government drive to reduce planning constraints and increase overall housebuilding remains ongoing. Potential for further UK interest rate cuts cannot be ruled out, while net cash held points towards a relatively robust balance sheet. 

For now, and while some caution looks sensible given increased economic uncertainties, a consensus analyst estimate of fair value above 560p per share, plus a forecast dividend yield of close to 4% look to offer grounds for longer-term hope. 

Positives: 

• Offers regional UK geographical diversity
• Targeting cost savings

Negatives:

• Uncertain economic outlook
• Sector competition 

The average rating of stock market analysts:

Buy