Redrow posts sales drop, but has the edge

Redrow’s (RDW) share price has been steadily climbing back to where it was before the mini-Budget turmoil helped tilt the housing market into a downturn. The equity market is betting that the worst may be over for the housebuilder, and there are some signs that this may be the case.

But first, the bad news. As expected, due to the higher interest rate environment, Redrow’s interim results reveal that weekly private reservations per outlet for the period are 41 per cent down on the comparable half-year last year, dropping from 0.64 to 0.38. Redrow also posted a drop in revenue and profit for the period, and its fall in forward sales means the housebuilder’s next set of results will be down, too. On the plus side, the measure has since recovered to 0.51 for the five weeks to 5 February. And although Redrow’s revenue and earnings are forecast to fall, it has beaten gloomy consensus forecasts for the previous couple of years.

The company is also better placed than its peers to deal with the end of the help-to-buy on 31 March. According to Investors’ Chronicle analysis, the scheme accounted for just 8 per cent of the housebuilder’s sales in the last financial year. That’s still a chunk of revenue that could shrink or be lost, but it’s a much smaller chunk than several at other FTSE 350 housebuilders that depend on the scheme for around a fifth of their sales.

The reason for this is that the company does not specialise in homes for the sorts of first-time buyers help to buy is aimed at – rather, it typically builds four-bedroom detached homes for a wealthier target market, one that is also less dependent on debt than the average buyer. This bodes well in a period of high interest rates and explains Savills’ (SVS) prediction that prime property will experience a 6.5 per cent fall in value this year compared with 10 per cent for the wider market.

However, despite the good news and Redrow’s forward sales uptick, it is still unclear how bad this downturn will be. Data is pointing in opposite directions. While Nationwide says house prices were “stable” in January as the small drop that month was much less than the fall in December, Halifax says that the fall in house prices for January was double the fall in December. The slowdown in the market may be more apparent in volume rather than price trends. Amid such uncertainty, we recommend caution. Hold.

Last IC view: Hold, 484p, 14 Sep 2022