Will the Redrow share price recover in 2021?

The Redrow share price is rising but is still lower than pre-pandemic levels. Can it make a complete recovery in 2021? Zaven Boyrazian investigates.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Hand arranging wood block stacking as step stair on paper pink background

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Like many housebuilding stocks, the Redrow (LSE:RDW) share price is on the rise. Over the last 12 months, it’s achieved a market-beating return of more than 65%. By comparison, the FTSE 100 has only increased by 25%. 

But can it maintain this level of growth? And should I be adding this business to my portfolio?

The rising Redrow share price

2020 created a challenging operating environment for homebuilders, and Redrow was no exception. With national lockdowns slowing the construction process and house viewings delayed for safety reasons, the company saw a considerable drawback in both revenue and profits.

However, as the business adapted to the new operating environment and lockdown restrictions began easing, its performance has been quite impressive. At least, I think so. Thanks in part to the temporary suspension of stamp study and government support schemes, Redrow’s total sales over the last six months have increased to £1.04bn. That’s about 7% higher than pre-pandemic levels. What’s more, total half-year home completions are back on the rise, with 3,065 houses finished compared to 2,554 in 2020.

Needless to say, these results are fantastic news. With £1.3bn in the order book, I believe that the impact of Covid-19 has finally worn off. And the management team appears to agree, given that it recently reinstated shareholder dividends. So, seeing the Redrow share price climbing these past few months is quite understandable.

Risks to consider

For the moment, house prices are rising thanks to increased demand, especially for properties that have a garden or large open outdoor areas. However, a lot of this growth stems from the favourable buying environment created by those government support programmes that are slowly being removed.

The suspension of stamp duty has already been lifted, while new restrictions were added to the Help-to-Buy scheme that’s scheduled to end in March 2023. The latter is of particular importance as it has substantially improved the affordability of properties. Once this scheme ends, the benefits end with it, and house prices may subsequently fall.

Another risk factor is interest rates. At the moment, they’re at record low levels of 0.1%. This has made mortgage loans far more accessible to low-income consumers. But I think it’s highly likely that rates will once again increase as the economy recovers from the pandemic. Consequently, interest payments on variable-rate mortgages will rise and could lead to a substantial slowdown in house sales as well as values.

The Redrow share price has its risks

The bottom line

Despite Redrow showing some impressive performance, the share price is still trading below its pre-pandemic levels. I believe it’s capable of recovering in 2021, assuming it can maintain its current growth.

However, like other homebuilders, the company appears to be heavily dependent on government support schemes to drive sales. Given that these are ending in the near future, I’d rather wait and see how the firm performs without this assistance. Therefore I won’t be adding any shares to my portfolio today.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Zaven Boyrazian does not own shares in Redrow. The Motley Fool UK has recommended Redrow. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

A pastel colored growing graph with rising rocket.
Investing Articles

How much passive income could I make for every £1,000 invested in Aviva shares?

Even a relatively small investment in Aviva shares could generate much greater passive income, particularly if the dividends are reinvested…

Read more »

Close-up of British bank notes
Investing Articles

I’m considering 100 shares in this FTSE 250 gem to aim for £300 a month in dividends

Mark Hartley outlines why a lesser-known banking stock from the FTSE 250's worth considering for an income portfolio in 2024.

Read more »

Investing Articles

History suggests these UK shares might soar if interest rates are cut in August

Some UK shares could rocket if interest rates fall from its 5.25% high next month. And there's one our writer…

Read more »

Female Doctor In White Coat Having Meeting With Woman Patient In Office
Investing Articles

Here’s why H1 results could boost the AstraZeneca share price

The AstraZeneca share price has been a success story in the past five years. With H1 results due, can it…

Read more »

Investing Articles

£17,365 in savings? Here’s how I’d use it to target a £6,700-a-month passive income

Here's how a lump sum investment could pave the way for me to make a four-figure monthly passive income in…

Read more »

Investing Articles

Down more than 10% in 6 months, Fools are backing these 5 UK stocks to reverse that – and then some! – by 2025

Some of our UK free-site writers have put forward their candidates for turnaround stocks!

Read more »

Investing Articles

Down 23%! Should I buy more CrowdStrike shares for my Stocks and Shares ISA?

Sometimes bad news can be good news for long-term investors. But is that the case for CrowdStrike in relation to…

Read more »

Investing Articles

2 UK shares near 52-week lows I’m considering snapping up

These UK shares are loitering near, or at, 52-week lows. Are these prime opportunities for our writer to boost her…

Read more »