The Barratt Redrow (LSE: BTRW) share price is falling faster than any other stock on the FTSE 100 today (15 July), down around 9.5% at one point but almost 7% as I write this.
It’s a real downside on a positive day for the index, which broke through 9,000 points for a while, the first time it had done that. So what went wrong?
This morning’s trading update confirmed that profits will fall short of expectations after a tough year for completions and a hefty new safety-related charge. The company, created in late 2024 when Barratt snapped up Redrow in a £2.5bn all-share deal, described it as a “solid” performance. Markets didn’t agree.
Annual completions fell to 16,565 homes, short of forecasts and below the combined total of 17,972 homes the two builders delivered a year earlier. Pre-tax profits are expected to land around 10% below forecasts, at roughly £712m. This is mostly due to a one-off £98m hit from fresh building safety costs.
Chief executive David Thomas blamed weaker international and investor activity in London. On a more positive note, he said the integration of Redrow is running ahead of schedule and should deliver savings. He also pointed to a “solid” forward sales position.
Dividend is back but fragile
I’ve been watching the housebuilding sector closely for years, and it’s been a tough time ever since the Brexit vote. Barratt Redrow is down 16% over 12 months, at a time when the index climbed exactly 10%. My own sector pick, Taylor Wimpey, has also done poorly, dashing my high hopes.
Still, Barratt Redrow’s valuation is undemanding at 14.7 times earnings. Some investors might consider buying at this level, hoping the worst is priced in.
The dividend yield looks decent at 4.3% on a trailing basis, but the recent track record isn’t great. The 2024 full-year payout was slashed by more than half, from 33.7p to 16.2p, amid lower earnings and challenging market conditions.
FTSE 100 housebuilders struggle
Can housebuilders recover? Chancellor Rachel Reeves is expected to use tonight’s Mansion House speech to support first-time buyers, possibly allowing higher borrowing multiples and easing deposit demands. If delivered, that could boost activity.
Interest rates also remain key. With the UK economy shrinking in April and May, the Bank of England is coming under pressure to cut rates at a faster pace, which could give the sector a lift.
But challenges remain. Last week RBC Capital Markets analysts warn that government planning reforms won’t help unless local councils start opening up new sites. Delays in funding for social and affordable housing are another drag. As they put it: “If they can’t build them, they can’t sell them.”
Patchy income, no growth
Aarin Chiekrie at Hargreaves Lansdown noted the morning sell but said Barratt Redrow’s balance sheet looks healthy adding: “The share buyback and dividend yield appear well supported.”
That might be enough to tempt investors. But I’ve learned the hard way that when a company issues a profit warning, more bad news can follow. Anyone considering jumping on this stock should do their homework and remember the sector has been out of favour for years.
At least there’s a dividend while they wait, which could be reinvested to buy more shares. But approach with caution.
