- Firm lowers sales and earnings forecasts
- Reservations fall as cancellations rise
- Chains breaking on mortgage availability
High-end housebuilder Redrow (RDW) issued a surprisingly downbeat trading statement ahead of today’s AGM (annual general meeting) citing a slowdown in reservations since it issued its full-year results in September.
The shares, which had been enjoying a strong run over the last fortnight, were languishing towards the bottom of the FTSE 250 down more than 5% to 491p in mid-morning trading.
WHAT DID THE COMPANY SAY?
At the time of its full-year results, the Flintshire-based developer reintroduced its financial guidance for the year to July 2024.
Based on a sales network of 117 outlets and a sales rate per outlet per week of 0.46 units, the firm said it expected revenue of between £1.65 billion and £1.7 billion and pre-tax profit of £180 million to £200 million.
That guidance has now been trimmed to the lower end of the range for both revenue and profit due to slower-than-anticipated sales and a lower number of outlets.
The value of net private reservations since the start of July is £384 million, 25% lower than the same period a year ago.
Moreover, due to a higher rate of cancellations caused by difficulties with mortgages lower down the chains, the sales rate has slowed to just 0.36 homes per outlet per week in the last 10 weeks.
The current order book sits at £864 million against £1.36 billion this time last year, with 58% of revenue legally exchanged and completed compared with 72% at this stage last year.
Meanwhile, average selling prices are 2.5% lower at £471,000 and build-cost inflation continues to nudge towards 7% given the cost increases inherent in the work in progress so margins are under pressure.
EXPERT VIEW
‘We know the housing market is in a bad place, so Redrow’s disappointing trading update can be seen in that context. Despite a slowly improving picture on borrowing costs, mortgages are still expensive, there are other pressures on people’s spending power and all of this is having an impact on demand’, commented AJ Bell investment director Russ Mould.
‘What paints things in a worse light for Redrow is several of its peer group have announced more solid performance over the last week or so and there have been some signs of stabilisation in property prices too.
‘That may suggest that Redrow’s area of focus – larger homes typically aimed at second or third-time homeowners – is proving a tougher market’, offered Mould.
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (Ian Conway) and the editor of the article (James Crux) own shares in AJ Bell.
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