The FTSE 100 can be a great place to find top value shares. I’m already an owner of Barratt Developments (LSE:BDEV) stock. And its stunning all-round value for money means now could be a good time to buy even more of its shares.
Here’s why.
Improving market
Housebuilders have had a tough time of late as higher interest rates have sapped homes demand. City analysts expect this to have pulled Barratt’s earnings 60% lower in the last financial year (to June 2024).
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However, the number crunchers expect annual earnings to rise sharply from this point on. They’re anticipating a market recovery as the Bank of England (likely) starts trimming interest rates in the coming months.
Fresh data today (15 July) from Rightmove underlines how earnings could potentially rebound at businesses like Barratt. It showed average asking prices slip 0.4% year on year, to £373,493, this month.
But encouragingly it also revealed a 15% leap in the number of agreed sales. This is up significantly from the 6% rise reported a month ago.
Looking cheap
Yet there are dangers to the recent general recovery in the homes market, and by extension to builder profits. Stubborn inflation could cause the BoE to keep interest rates locked around current levels, limiting further improvement.
Higher-than-normal levels of cost inflation might also remain a problem.
However, I believe these factors might be reflected by the outstanding cheapness of Barratt shares. City analysts expect earnings this year to surge 23% in financial 2025. This leaves the FTSE 100 firm trading on a forward price-to-earnings growth (PEG) ratio of 0.7.
A reminder that any sub-one reading indicates that a share is undervalued.
Overreaction?
Barratt shares slumped following the company’s full-year trading update last week. Investors took fright at a sharp fall in completions in the 12 months to June, and predictions they will fall to between 13,000 and 13,500 this year, from 14,004 in that previous period.
However, I think the market’s negative reception to the numbers could be an overreaction. Home completions last year topped Barratt’s estimates, which was boosted by the steady uptick in net private reservations from earlier lows.
These came in at 0.58 per active outlet per week, marking an improvement (albeit fractionally) from 0.55 in financial 2023.
Big opportunity
While the near-term outlook remains uncertain, I’m convinced owning Barratt shares remains an attractive option for long-term investors to consider.
Planning red tape has long been a problem for housebuilders. But Labour’s plans to loosen restrictions — an idea the new government thinks will create 300,000 new homes a year to 2029 — could make it much easier for builders to grow profits from this point.
Barratt’s planned takeover of FTSE 250-listed Redrow will help the company better harness this excellent growth opportunity, too, underpinned by the UK’s rising population and subsequently increased housing needs. The enlarged group has the potential to build 22,000 new homes a year in the medium term, the FTSE firm says.
While it isn’t without risk, I believe Barratt could be one of the index’s most attractive value shares to look at right now.
