Redrow on way to profit

HOUSEBUILDER Redrow expects to return to profitability in the second half of 2010 as market conditions continue to improve.

The FTSE 250 group says it has been “encouraged” by sales activity since the start of the calendar year.

It is likely to legally complete more than 2,500 homes this year with sales rates per outlet “comfortably ahead” of the same period last year.

Meanwhile, house prices have remained stable since the start of the year, although the average selling price of its properties has risen due to a change in product mix.

Weekly visitor levels and cancellation rates have been reasonably consistent since 1 January 2010, it added.

The housebuilder has also seen a noticeable increase in activity in the land market over the last few months.

Since the start of the year it has secured or agreed terms on around 2,500 plots on 18 new sites.

However, it warned that difficulties remain despite housing market surveys pointing to steady price rises over the past year.

Mortgage lenders Halifax and Nationwide say that property prices have risen almost ten per cent from a low hit around a year ago. However, Redrow said it was cautious

“Given the uncertainties surrounding the election, the economic environment and continued restrictions on mortgage availability, we expect the market to remain challenging throughout 2010,” the company said in said in a statement.

Net debt is currently around £50m, which is well within the group’s bank facilities of £250m.

However, it expects net debt to rise over the coming months as its land bank increases.

Shares in the group went up one per cent after yesterday’s announcement to 152.5p. Meanwhile, two more of the UK’s biggest housebuilders – Bellway and Persimmon – also rose about two per cent.

There is better value elsewhere
NO ONE can deny that Redrow’s management team has engineered an impressive recovery. With the once moribund housing market showing signs of life, the firm says that sales rates per outlet are comfortably ahead of the same period last year. Falling prices and soaring cancellation rates are also showing signs of stabilisation.

Unlike some of its heavily indebted peers, Redrow’s net debt of around £50m is well within its borrowing facilities of £250m. That’s just as well, as management is sure to ratchet up gearing in the coming months as it starts buying new land for future developments, a sign in itself that things are on the up. The firm has bought around 2,500 new plots on 18 sites since the beginning of the year, and reports that rivals are also busy, with a noticeable increase in activity in the land market in recent months.

That said, the stock is trading at a seven per cent premium to its June 2010 net asset value, while the majority of its peers are actually trading at a discount to their net asset values. This suggests that the successful turnaround story is already priced into the shares, which closed at 151p yesterday. Those shareholders hunting for more value would be best to look at other housebuilders like Berkeley Group and Bellway, who still have some distance to travel in their recoveries.

Analysis by David Crow