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Redrow benefiting from the 'race for space'

The builder's property portfolio is well suited to changing demand dynamics
Redrow benefiting from the 'race for space'

 

  • Increased set-aside for government cladding requirements
  • Property Developer Tax is enacted in April

Whether intentional or otherwise, Redrow (RDW) finds itself in a ‘sweet spot’ in the housing market. Many homebuyers are now looking to secure larger, standalone properties outside city centres, a trend given added impetus by the spread of hybrid working patterns. The builder’s portfolio fits the bill, and management notes that the change in buyers’ preferences has contributed to recent house price growth. The average selling price of its homes increased by 8 per cent to £419,000, outstripping material cost price inflation which is guided at 6 per cent for the full financial year.

It hasn’t been all plain sailing. Total completions were down by 10 per cent, a consequence of the ongoing “transition out of London”, specifically a reduction in apartment completions.

Matters haven’t been helped by planning delays, as local authority planning teams struggle with resourcing issues – the pandemic casts a long shadow. Securing the services of subcontractors has also become a more fraught process of late, though this is partly down to particularly high demand in certain areas of the UK.

Despite these challenges, operating profit increased by 15 per cent to £205mn, with the underlying margin restored to the 2019 level of 19.5 per cent.

Redrow is setting aside an additional £10mn to meet government funding requirements for the replacement of unsafe cladding on buildings of 11mn and above, bringing its total outlay to £36mn. The full-year tax burden is also expected to rise once the Property Developer Tax is enacted in April.

Shares trade at a 15 per cent premium to net assets and at 7 times consensus earnings. Not an unreasonable asking price given the margin build underway and an order book up by £200mn to £1.5bn. Buy.

Last IC view: Buy, 695p, 15 Sep 2021

REDROW (RDW)    
ORD PRICE:640pMARKET VALUE:£ 2.3bn
TOUCH:639-641p12-MONTH HIGH:744pLOW: 540p
DIVIDEND YIELD:4.5%PE RATIO:8
NET ASSET VALUE:555pNET CASH:£242mn
Half-year to 2 JanTurnover (£bn)Pre-tax profit (£mn)Earnings per share (p)Dividend per share (p)
2020 (to 27 December)1.0417441.06.00
20221.0520348.110.0
% change+1+17+17+67
Ex-div:24 Feb   
Payment:08 Apr