Redrow Share Blog – Interim Results Year Ending 2020

Redrow has now released their interim results for the year ending 2020.

Revenues declined by £100M when compared to the first half of last year.  Cost of sales also fell to give a gross profit £25M lower.  Admin expenses were up £3M but tax charges fell by £6M which meant the profit for the period was £128M, a decline of £22M year on year. 

When compared to the end point of last year total assets declined by £51M driven by a £115M decline in cash, a £51M decrease in land for development and an £11M fall in receivables, partially offset by a £99M growth in work in progress.  Total liabilities also declined during the period as a £15M growth in payables was more than offset by an £84M decrease in land creditors and a £34M fall in current tax liabilities.  The end result was a net tangible asset level of £1.64BN, a growth of £57M over the past six months.

Before movements in working capital, cash profits declined by £28m to £159M.  There was a cash outflow from working capital and tax payments increased by £42M which meant there was a cash outflow of £33M before financing.  The group paid out £72M in dividends and paid back £5M of bank loans to give a cash outflow of £115M and a cash level of £89M at the period-end.

Legal completions reduced from 2,970 to 2,554 with private completions down 99 and social completions falling by 317. The private average selling price was down £4K at £387K.  Gross margin was kept broadly the same as build cost inflation was offset by the change in mix.  Overheads increased by £3M following the opening of the new Thames Valley division. 

The housing market continued to be affected by political uncertainty around Brexit and the general election.  This had an impact on the time taken to close new home sales.  Despite this, the group saw a record number of private reservations with the value of them up 18% to £936M. Excluding the Colindale PRS deal, they were up 3%.  At the period-end the group had an order book of £1.2BN which was in line with last year’s level. 

The market was fairly consistent across all operating areas with London showing some early signs of improvement and pricing was stable.  The new Thames Valley division make a positive contribution to profits.  The board anticipate underlying build cost inflation will reduce in the calendar year 2020 to around 3% and will be largely offset by modest house price gains.

The group acquired 1,946 plots with planning and the owned and contracted land holdings with planning closed at 28,125 plots compared to 28,566 plots at the year-end.  They are processing a sizeable pipeline of sites with terms agreed and they expect acquisitions to accelerate in the second half. 

There are a number of changes scheduled for the board.  Chairman John Tutte will step down from July and Matthew Pratt will be appointed as CEO.

The market in the first five weeks of the second half has been resilient with the value of reservations up 15% at £180M.  Current market conditions combined with the strong order book gives the board confidence this will be another year of progress and expectations for the full year remain unchanged.  Planned changes to Help to Buy next year will limit the scheme to first time buyers and introduce regional price caps.  Whilst they expect this will see demand increase in the short term from buyers that will not qualify for the scheme in 2021, the board believe the regional caps will disadvantage buyers in the North and Midlands.

Due to constrained outlet growth last year and the timing of apartment block completions, the board budgeted to deliver significantly more completions in the second half than usual.  They are on track to do so.

At the current share price the shares are trading on a PE ratio of 9.1 which falls to 9 on the full year consensus forecast.  At the period-end the group had a net cash position of £14M compared to £124M at the year-end.  After a 5% increase in the interim dividend the shares are yielding 3.7% which increases to 3.8% on the full year forecast. 

Overall then, on the surface this looks like it has been a bit of a tricky period for the group.  Profits were down, net assets did improve but the operating cash flow deteriorated and there was no free cash.  The issue seems to be a lack of legal completions and is hopefully temporary as the board expect a much better second half.  The changes in the Help to Buy scheme look worrying but everything else seems stable.  I’m tempted to take some profit here, it could be that the good times for housebuilders don’t have much further to run, but with a forward PE of 9 and yield of 3.8% there still could be value here.

On the 18th February the group announced that director Timothy Stone sold 5,625 shares at a value of £8K.

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