Mark Martin, manager of the Neptune UK Mid Cap Fund (GB00B3D7FD61), explains why there is fundamental value in FTSE 250 housebuilder Redrow (RDW).
"The new Help to Buy housing scheme announced in the recent Budget is a material positive for housebuilding stocks such as Redrow," says Mr Martin. "The government already had significant measures in place to help housebuilding before the Budget, as boosting housebuilding is seen as a way of stimulating the domestic economy. However, the new scheme is bigger than its predecessors and better for housebuilders as the government is offering all of the 20 per cent shared equity, which was previously split 10 per cent/10 per cent between the government and the housebuilder. Help to Buy is also broader in its reach than the FirstBuy scheme, which was only for low-income households; Help to Buy is for everyone.
Redrow's chairman and founder is Steve Morgan. Better known in some circles for his role as chairman of Wolverhampton Wanderers, Steve Morgan has been driving an impressive turnaround at Redrow. The housebuilding sector generally has benefited from expanding margins as builders start selling houses built on land bought at the bottom of the cycle. Last year, Mr Morgan tried to take back control of Redrow with an opportunistic offer for the company. Although the offer was rebuffed by shareholders, his interest is a clear signal of confidence in the fundamental value of the company."
Redrow trades at around 188p a share and has a price/earnings ratio (PE) of 17.28. Investors Chronicle rates Redrow a 'Hold' as it is priced on a 20 per cent premium to book value, which means the good news is now largely priced in. Redrow shares rose around 80 per cent between June last year and the end of February.
