What's new:
■ Sales up 9 per cent since 30 June
■ 800 more building plots acquired
■ Further focus on building family homes
Redrow has continued to focus on building more family homes and less apartments, so while reservations since the end of June have fallen 6 per cent, like-for-like sales volume rose 9 per cent to £133m. In fact, the company's New Heritage collection of family homes makes up nearly half of all sales, and of its 78 developments around 70 per cent will be selling New Heritage homes by the end of the financial year.
However, chairman and founder Steve Morgan warned in a trading statement that unless there is a resolution to the current restrictions on mortgages, the company's ability to grow will be restricted, pointing out that with just six lenders covering over 90 per cent of the mortgage market, first time buyers will continue to struggle. In the last three years, the number of mortgage products available to buyers with deposits of 5 per cent or less has collapsed from 1,224 to just 33, he added.
However, Redrow remains better placed than many other housebuilders to survive the scarcity of mortgage offers. Net debt has been reduced to around £58m, which means gearing is only 13 per cent, and the land bank of 13,000 plots is the equivalent of five years of output at current levels. The company will report its half year results to the end December on Thursday 17 February.
Investec Securities says...
Buy. Redrow has done well to reduce debt and improve margins. The switch to higher quality family homes has allowed average sale prices to rise significantly, and Redrow's prospects are now that much the better following the return of founder Steve Morgan last year to revive the company's fortunes. Economic uncertainties remain but we expect normalised pre-tax profits of £15m and EPS of 3.5p for the 12 months to June 2011. The shares trade on a 10 per cent discount to reported book value of 141p and our target price is 179p.
KBC Peel Hunt says...
Sell. Trading is slightly on the soft side, and the weakening trend in house sales is not helping. This is important because Redrow has managed to counter a fall in unit sales with a rise in higher margin unit sales. But this trend is unlikely to continue if the overall market weakens. That said, Redrow deserves credit for the turnaround effected by Steve Morgan. We are forecasting adjusted pre-tax profits of £13.9m and EPS of 3.4p for the 12 months to June 2011 and regard a share price of 80p as fair value.
