Redrow stays confident in cooling market

Another housebuilder, another post-Grenfell cladding bill. Much like its competitors, Redrow’s (RDW) most recent results – for the year to 3 July – reveal that pre-tax profits have been slashed by eye-watering costs as a result of the government’s push to make housebuilders fix fire safety issues on buildings over 11 metres tall going back three decades. And much like its competitors, Redrow’s in-house figures omit this cost to reveal “a return to the record underlying profits achieved pre-Covid”. 

The £410mn in underlying pre-tax profits plummets 40 per cent when the £164mn cladding bill is included. Chief executive Matthew Pratt says the figure is “what we expect to be the whole cost”, but it is not beyond the realms of possibility that the government will ask residential developers for more money to fix other fire safety issues – such as on buildings under 11 metres tall.

The other dark cloud is the impending house market downturn. Pratt disputes the notion that the market is headed south, arguing that it will instead “normalise”, but however it is described there’s no getting away from the fact that interest rates have caused house sales to fall. In turn, prices are predicted to have a mixed time of it in the months and years ahead.

Add rising construction costs and the threat of a recession into the mix and it’s easy to get bearish about Redrow despite this year’s increase in revenue and underlying profits. Analysts are forecasting a drop in sales and profits over the next couple years before picking back up again in 2025. As such, now is not the best time to buy, but selling would be an overreaction. Hold.

Last IC view: Buy, 640p, 10 Feb 2022

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For more on the housing market and housebuilders: 

Is the housing market structurally sound?

Are housebuilders cheap, or a value trap?

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