Housebuilder Redrow (RDW) jumps 3.1% to 287p as a trading update for the 17 weeks to 25 April 2014 show encouraging growth across the major metrics. An improving economy and the stability of government support – as evidenced by the decision in March to extend Help to Buy to 2020 – continue to conspire in favour of the housebuilders.
Colin Sheridan at Davy Research maintains that like some its smaller-cap peers, 'Redrow’s price to tangible book value metrics over the last two months have moved back to historical averages, or below (1.62x versus 1.63x average). This has been driven both by the recent sell-off and book value growth.'
Sheridan maintains that 'the smaller builders all have good growth prospects and are well supplied with land, and their valuations are now starting to look attractive.' Despite this upbeat view, the analyst prefers Bellway (BWY) and Bovis Homes (BVS).
We will look at the housebuilding sector in detail in the next issue of Shares, published on 1 May.
Redrow's net reservations in the trading period rose 17% to 1,280 while the group reported a 12% increase in outlets to 92. The sales rate has also edged up 5% compared the same period last year but crucially it is the rise in house prices that is underpinning optimism in the sector.
Redrow – thanks in part to its high exposure to the London and Southeastern markets – revealed that the average selling price of private reservations for the financial year to date was £289,000, 16% higher than last year.
The price of private legal completions for the same period was £272,000 compared to £226,000 in the same period in 2013.
Legal completions in London are expected to add as much as £120 million in revenues for the current financial year.
Debt is expected to edge up as Redrow finances its continued investment in the land bank.
Net debt as at 25 April, stood at £153 million compared with £149 million at the end of 2013 and this should tick higher, reaching a still manageable £200 million by the end June this year, say analysts.
Since the half year, Redrow has added 11 sites to its land portfolio which comprise of 1,300 plots while terms have apparently agreed on a number of other opportunities.