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Redrow warns surging demand won't be sustained

The housebuilder has benefitted from pent-up demand and the stamp duty holiday over the summer months
Redrow warns surging demand won't be sustained

Pent-up demand and a rush of customers utilising a pause in stamp duty and the help-to-buy scheme pushed Redrow’s (RDW) order book to a record £1.42bn at the end of June, representing annual growth of more than a third. That momentum continued throughout summer, with reservations 12 per cent ahead during the first 11 weeks of the current financial year.

IC TIP: Buy at 446p

Readying for an anticipated spike in demand ahead of the help-to-buy scheme changes in March, along with the impact of lower completions, meant gross investment in work in progress increased to 69 per cent of turnover, compared with 37 per cent last year. It has increased the number of plots under construction by 13 per cent. 

However, the rate of demand is likely to fall back slightly once the stamp duty breaks come to an end, according to executive chairman John Tutte. “Part of that is due to the availability of the properties that we will complete before the stamp duty deadline at the end of March,” he said. Some sites have no available plots at all, he added. 

It follows a dire second-half of the June-end financial year, when the closure of construction and sales sites meant completions declined to just 264 and a £17m provision for scaling-back London operations resulted in a pre-tax loss. Over the full-year, completions were down just over a third, although the private average selling price remained broadly steady at almost £387,000. The decline in completions contributed towards the housebuilder swinging to a £126m net debt position, but the group expects this to reverse by December, after which it will resume dividend payments. 

House broker Peel Hunt forecasts adjusted pre-tax profits of £240m and EPS of 57.7p for the year to June 2021, rising to £285m and 68.5p the following year.

REDROW (RDW)    
ORD PRICE:446pMARKET VALUE:£ 1.57bn
TOUCH:445-446.4p12-MONTH HIGH:851pLOW:293p
DIVIDEND YIELD:NILPE RATIO:14
NET ASSET VALUE:462pNET DEBT:8%
Year to 30 JunTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20161.3825058.210.5
20171.6631573.717.85
20181.9238085.328.0
20192.1140692.330.5
20201.3414032.9nil
% change-36-66-64-
Ex-div:na   
Payment:na