The Barratt Redrow (LSE: BTRW) share price picked up 3% in early trading Wednesday (23 October), on the back of the latest trading news.
The update is the first since the Competition and Markets Authority (CMA) finally cleared the all-share merger of Barratt Developments and Redrow on 4 October.
It effectively happened in August, but the CMA had been considering an investigation.
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CEO David Thomas said: “Whilst customer demand continues to be sensitive to the wider economy, we are beginning to see more stable market conditions with increased mortgage availability and affordability.“
Merger benefits
The board reckons the tie-up should deliver “at least £90m of cost synergies.” It also spoke of “revenue synergies from 45 incremental sales outlet openings through until FY28.”
The company should hit total home completions for the year to June 2025 of between 16,600 and 17,200 homes.
But that really just reflects the previous guidance for the old Barratt, plus Redrow’s order book.
And while this sounds upbeat, we’ll still need to keep in mind something else the CEO said: “It will take some time for customer confidence to fully recover from the macroeconomic headwinds faced over the past two years.“
Opportunities missed?
I’m a bit surprised that we didn’t see more consolidation in the rough years since the 2020 stock market crash.
During the worst, they all looked cheap to me. And if I didn’t already have a stake, I’d have wanted to buy.
Even at this late stage, Vistry announced a £130m buyback in September. So it clearly thinks its shares are worth the money at today’s price. And that’s with the stock up 33% in the past 12 months, even after this month’s profit warning dip.
Bellway launched a £100m buyback in 2023 too, and has also seen share price gains since then.
Still, these sums are too small for any kind of cash takeover bid. And a stock-based takeover attempt doesn’t really work when a predator’s shares are also undervalued.
Buy housebuilders?
Still, it does suggest that housebuilder shares have been undervalued for a few years, as I’ve maintained ever since the slump.
But the big investing institutions were looking at the short term in what’s a very long-term business. More fool them, and all power to private investors who bought when the going was so good.
The question though, is whether Barratt, and the rest of the sector, are still good to buy now.
The forward price-to-earnings (P/E) ratio stands at 20, which could make the stock fully valued. Forecasts drop it to 12 for the 2026-27 year, which would make Barratt look cheap again to me.
Dividends
Also, the modest 3.4% dividend yield on the cards for this year could rise to 5.8% based on 2027 forecasts. But there’s much uncertainty between now and then.
I’d consider buying Barratt for the long term, for sure. But I think high mortgate rates could still mean short-term pressure. I’d probably go for stocks with bigger dividends first.
