The housing sector is still packed with plenty of upside despite predictions of a sharp demand slump as Brexit worries dampen the domestic economy.
This was underlined by recent news that Redrow (LSE: RDW) has sounded out Bovis Homes as a potential takeover target. Investors should be encouraged by the resilience of the homes market despite the country’s uncertain future, as supportive lending conditions are helping demand to continue outstrip supply growth.
Redrow announced last week that “trading and performance continues to be robust, as a consequence of a record order book and a further increase in legal completions, combined with better than anticipated increases in average selling prices.”
As a result Redrow anticipates that pre-tax profit for the year to June 2016 will ring in at a minimum of £306m, up 22% from the prior 12 months.
Fiery forecasts
And City analysts certainly expect Redrow to remain on an upward trajectory for some time yet, even though earnings expansion is anticipated to moderate along with UK home price growth.
For the year to June 2017 a 14% bottom-line bulge is predicted, and a further 5% advance is predicted for 2018. But with home industry data still continuing to defy gloomy predictions, I reckon Redrow — just like its London-quoted peers — could continue to see brokers upgrading their earnings forecasts in the months ahead.
The builder already deals on a mega-low forward P/E ratio of 7.8 times, a figure that leaves plenty of upside and more than bakes in the possibility of any market turbulence in the near-term and beyond, in my opinion.
But Redrow should also be a star attraction for income chasers, with dividends expected to keep growing at a stratospheric rate. Indeed, last year’s reward of 10p per share is expected to jump to 14.7p and 18.1p in 2017 and 2018 respectively. Consequently the yield shoots from 3% in the present period to 3.6% in the following period.
With Britain’s homes shortage likely to take many, many years to properly address, I reckon Redrow should prove a lucrative stock for long-term share pickers.
Budget brilliance
I also reckon budget retailer B&M European Retail (LSE: BME) should generate exceptional earnings growth in the years ahead.
Not only does it stand to benefit from the impact of rising inflation on shoppers’ pursetrings here in the UK (like-for-like revenues shot 7.2% from October-December), but B&M should also enjoy rising sales in Germany as the upward price creep continues there.
The diversified retailer is expanding in both territories to latch onto continental shoppers’ rising appetite for a bargain.
So the City expects B&M to follow a 14% earnings rise in the period to March 2017 with rises of 10% and 14% in fiscal 2018 and 2019. And I reckon a forward P/E ratio of 18.7 times is a decent level at which to tap into the company’s exceptional cross-continental revenues prospects.
