I find it strange many brokers only rate Redrow as a hold. By the year ending June 2016 Redrow is likely to have increased its Net Asset Value to 278 pence, and brokers have pencilled in EPS of c. 51p. These financial metrics easily support a share price valuation of £5.75 by June 2016. That would place Redrow on a price to book multiple of 2x, the average multiple for the sector across a business cycle. In addition this would place Redrow on a price earnings multiple of just 575/51 = 11.3 which would not be considered in the least bit stretched. Therefore I place a fair value of £5.75 on Redrow shares for 7 months time. This is a potential 34% gain. I was very impressed by Redrow's recent trading statement and accordingly I have increased my position again here over the past two days. I see no reason for brokers to rate Redrow down as a mere hold, compared with Bovis and Crest which the majority rate as buys.
By 2017 Redrow will have increased its NAV per share to 327p. Assuming a trading multiple of 2x, that would yield a realistic price target for June 2017 of 327*2 = £6.54. The EPS for that year is likely to be c. 58p, yielding a pe multiple based on this price target of 654/58 = 11.2 for the year which again is still a conservative trading multiple.
By 2018 Redrow will have increased the NAV per share to 380p. Assuming the sector norm 2* NAV a sensible share price target for June 2018 would be 3.80*2 = £7.60. For 2018 Redrows target is a minimum of 62p EPS, and from the LTIP incentive plan we know the BODS are likely to achieve EPS of between 62p and 74p. Brokers have pencilled in 66p, which on our £7.50 price target would put Redrow trading on a very conservative multiple of 760/66 = 11.5x.
I think this gives a conservative view into sensible price targets for Redrow. If we achieve £7.60 by June 2018 that will pencil in a capital gain of 77% from today's share price, so in view of the above Redrow looks a terrfific buy at todays prices. On the same basis Bovis Homes could potentially achieve a capital return of above 100% if the BODS get their act together! Using the same analysis Crest Nicholson appears to offer similar value to Redrow but with MUCH higher dividends pencilled in, probably why brokers love crest so much.
Redrow is likely to have almost 10% more outlets this year and the sales rate per outlet per week is up 5% on last year. The Average Selling Price of private reservations is up 18% mainly driven by better quality outlets coming on stream to replace lower priced sites. Redrow is likely to produce much better results than expected IMO.
Redrow Strikes Gold For Second Year at What House? Awards Commercial Property SHARE Chris McColgan , 26th November 2015
FOR the second consecutive year, Redrow Homes has been named ‘best large housebuilder’ at a national ceremony widely regarded as the ‘Oscars’ of house building.
The homebuilder scooped the Gold title at the glittering What House? Awards ceremony at London’s Grosvenor House hotel on Friday (November 20).
“In this category it is important to look behind the numbers; for what is key at the volume end of the market is not just what and how they are building, but what the big developers are doing to promote the need for more homes, putting their names and reputations out there.
“Redrow once again led the field with initiatives throughout its business, backed by quality products, both traditional and contemporary, across England and Wales. It is strengthening its commitment to sustainability, continues at the forefront of industry training, and is revolutionising its customer service.”
Having been founded in North Wales as a small civil engineering business by chairman Steve Morgan in 1974, Redrow now builds over 4,000 homes each year at more than 100 locations across England and Wales. The company posted record financial results earlier this year with a turnover in excess of £1 billion for the very first time.
Placing Redrow ahead of Berkeley Homes in second place, and Barratt and CALA jointly in third, judges added:
“Redrow’s marketing continues to evolve and embrace online technology. Indeed, its Redrow TV channel includes a host of videos, highlighting not just the developments, but the way Redrow staff engage with the communities in which they build, enjoy and deliver.
“As for the financial numbers, they are record-breaking, as the company heads into its fifth decade, pushing boundaries and constantly enterprising.”
The company also won the bronze award for ‘best landscape design’ for its Lucas Green development in Chorley, Lancashire, where a restored and now Grade II listed World War II pillbox and gun mounting has just been unveiled as part of the public open space.
Redrow’s Group chief executive John Tutte said:
“It’s fantastic to win the best large housebuilder award once, but extra special to win it for a second year on the run. We’re striving to be the best in an industry with very tough competition.
“Our philosophy is to build the homes our customer really want to live in, deliver exceptional customer service, create communities that will stand the test of time, and ensure our business is a sustainable one. Our aim to be the home builder of choice for our customers is strengthened by independent awards such as this.”
Presented by actor, author and comedian David Walliams, the 34th WhatHouse? Awards ceremony broke its o
Redrow trades on a lower PE ratio than sector peers because it pays a negligible dividend. This is part of its overall strategy though, as monies are instead channeled into growth. Redrow has targeted a minimum of 62p EPS by 2018, and to do with it will need to continue to increase volumes quite substantially. This means further investment in the landbank which is currently only 3.9 years long at current volumes. Significant investment is thus required in the landbank and so low dividends are paid. Whilst the dividend is low, generally the pe multiple will remain low relative to the sector. The big dividend payers have the highest pe multiples, ie tw, psn etc. When redrow ups the dividend I would expect a higher rating on a pe. Although this being said, still looks cheap now as do many builders. strong buy at these levels.
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