ii view: housebuilder Redrow beats City forecasts

Full-year results to 2 July

• Revenue flat at £2.13 billion
• Underlying pre-tax profit down 4% to £395 million
• Final dividend down 9% to 20p per share
• Total dividend for the year down 9% to 30p per share

Guidance:

• Expects full-year profit for the year ahead of between £180 million to £200 million

Chief executive Matthew Pratt said:

“Cost of living and mortgage affordability continue to have a negative impact on the market. Despite these difficult market conditions our strategy remains the right one, and this was clearly demonstrated during the financial year under review. Our Heritage Collection serves different parts of the market: from downsizers who want character with energy efficiency, to aspirational home movers who desire quality and space."

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ii round-up:

Mid-sized housebuilder Redrow (LSE:RDW) today flagged its expectations for profit over the year ahead to potentially halve, although it detailed profit for the past year which exceeded City forecasts.

Profit for the year to early July 2024 is forecast to come in at between £180 million and £200 million as sales likely remain subdued. That’s broadly in line with existing analyst forecasts but significantly down from the £395 million achieved to early July 2023. The City had forecast an outcome of around £367 million. 

Shares in the FTSE 250 company rose by 6% in UK trading having come into this latest news up by around 4% year-to-date. London focused rival Berkeley Group Holdings (The) (LSE:BKG) is up by a similar amount, while the FTSE 250 index itself is down by close to 4% this year.  

Redrow sells a variety of builds across England and Wales, with air source heat pumps and ground floor underfloor heating now standard in detached homes on new developments.

Sales for the first 10 weeks of the new financial year stood at 0.34 per outlet per week, down from 0.61 for the same period last year, as buyers continued to battle higher borrowing costs. 

Sales on the same basis over the full year had fallen to 0.46 from 0.68 per outlet per week. Its total order book stood at £0.85 billion as of early July, down from £1.44 billion a year ago. 

The final dividend is reduced by 9% to 20p per share, giving an annual payout of 30p per share, down from 32p.

Broker UBS reiterated its ‘buy’ rating on the shares given what it sees as an ‘inexpensive’ valuation. 

ii view:

Founded in 1974 as a small civil engineering business in North Wales, Redrow today competes against rivals including Taylor Wimpey (LSE:TW.) and Bellway (LSE:BWY). In 2020, it sold its London operations to focus on the regions. Employing over 2,000 people, build completions of 5,436 for this latest year fell from the prior year’s 5,715. 

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For investors, the challenging economic backdrop including potentially higher interest rates cannot be overlooked. Costs generally for businesses remain elevated, issues regarding legacy fire safety continue to be addressed, while previous government support in the form of its ‘Help-to-Buy’ scheme has been removed. 

More favourably, early 2023 moves to differentiate its builds via features such as air source heat pumps warrant consideration. Exposure to London was previously removed, costs remain a management focus, while an estimated price to net asset value of 0.9 times compared to a three-year average of 1.1 times suggests the shares are not obviously expensive.  

For now, and despite ongoing risks, an historic dividend yield in the region of 6% should at least keep income investors happy. 

Positives: 

• Pushing build differentiation 
• Attractive dividend yield (not guaranteed)

Negatives:

• Ongoing economic outlook uncertainty
• Elevated costs

The average rating of stock market analysts:

Buy