Redrow divided up 31% as revenue tops £2.1bn

Redrow plc, the Flintshire-based house building giant, said its revenue increased 10% to £2.14 billion, just above its 2019 pre Covid record level, in the 53 weeks to July 3, 2022.

Underlying profit before tax was up 31% to £410 million, also back to pre Covid record level, but statutory profit before tax slipped 22% to £246 million after exceptional fire safety costs of £164 million.

Redrow is proposing a final dividend of 22p, making a total of 32p for the year, up 31%.

The company recently announced a share buyback of up to £100 million.

Redrow chairman Richard Akers said that given rising inflation and higher interest rates it is “not surprising” the buoyant housing market has moderated and demand has returned to “historically average” levels.

Akers said: I am delighted to report a year of strong growth which has resulted in our underlying profits returning to the record levels achieved in 2019 prior to Covid.

“Revenue increased by 10% to £2.14bn and underlying profit before tax was up 31% year on year, both ahead of our pre-covid 2019 figures.

“Our award winning Heritage range of family housing in well chosen locations and with excellent place making has increased its appeal as the market has evolved, and remains ideally suited to our target home mover customer who tends to be more financially resilient.

“In addition to the record revenue achieved, the group still ended the year with an order book of £1.44bn.

“Excellent progress has been made during the year executing our strategy to grow in the regions.

“The new Southern business, based in Crawley, officially opened at the end of June but the team has been active in the land market for some time.

“This division is expected to make a positive contribution to profits in the current financial year.

At the end of this financial year our total land holdings stood at 67,400 plots, compared with 60,100 at the end of the 2019 financial year.

“Although the planning system is difficult at present, this gives us a strong pipeline of new outlets to continue our growth.

The board is proposing a final dividend of 22.0p making a total of 32.0p for the year, up 31%. In addition, we recently announced a share buyback of up to £100m in line with our published capital allocation policy.

Given rising inflation and higher interest rates it is not surprising the buoyant housing market has moderated recently and demand has returned to historically average levels.

“It is on this basis we have prepared our medium term plan and we are confident our timely investment in land, combined with strong demand for our Heritage homes, will support our continued growth.

“In addition, our opening order book of over £1.4bn has put us in an excellent starting position for the 2023 financial year.

“As a result, the business is well placed to deliver another set of strong results.

 REACTION:

Victoria Scholar, Head of Investment, Interactive Investor: “Redrow delivered full year underlying gross profit up 25% to £516 million on revenues up 10% to £2.14 billion.

“It raised the final dividend by 19% to 22p, lifting the full year dividend to 32p versus 24.5p in 2021. Redrow said so far 2023’s order book represents an ‘excellent starting position.’

“This is a mixed bag from Redrow with strong gross profit and revenue growth offset by concerns about a peaking housing market and an increasingly cumbersome cocktail of macroeconomic pressures.

“Although demand continues to outstrip supply, rising mortgage rates, a cooling economy, the cost-of-living crisis and rampant build cost inflation are creating major headwinds for the housebuilders.

“As a result, Redrow has been subject to a series of price target cuts lately from the analyst community including HSBC which downgraded the stock to a hold from a buy this month.

“Shares in Redrow have shed a third of their value year-to-date which is better than some of its rivals like Persimmon and Barratt Developments which are down by 50% and 45% respectively.

“Redrow is trading modestly higher so far today, with shares pricing in the mixed report as well as the wider bearishness gripping global indices.”

Charlie Huggins, Head of Equities at Wealth Club: “House prices have proved remarkably robust since the pandemic struck, buoyed by pent-up savings and cheap mortgages.

“Redrow, like other housebuilders, has gushed cash in this environment and is earning huge margins to boot.

“Redrow’s premium quality housing is resonating strongly in the current environment, with the ‘race for space’ supporting demand for larger, family homes. But, make no mistake – the biggest reason for Redrow’s success is high house prices, and the general strength of the housing market.

“That is something over which it has no control, and the big bad wolf of recession could be about to blow away the good times.

“Increasing house prices in recent years mean home buyers are having to borrow more to get on the housing ladder.

“Combine that with rising interest rates, which ultimately mean more expensive mortgages, and the affordability of property could fall substantially.

“If interest rates keep rising, it’s hard to see how the housing market would be immune.

“This is the kind of environment where you find out which housebuilders have built their success on a base of bricks, and which are about to have their sticks and straw blown away by.”

About the Author

Mark McSherry
Dalriada Media LLC sites are edited by veteran news journalist Mark McSherry, a former staff editor and reporter with Reuters, Bloomberg and major newspapers including the South China Morning Post, London's Sunday Times and The Scotsman. McSherry's journalism has also appeared in The Washington Post, The Guardian, The Independent, The New York Times, London's Evening Standard and Forbes. McSherry is also a professor of journalism and communication arts in universities and colleges in New York City. Scottish-born McSherry has an MBA from the University of Edinburgh and a Certificate in Global Affairs from New York University.