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Barclays follows up with another overweight rating, maintaining a target SP of 840GBX
RDW was one of my better lockdown era investments, though the SP has fallen in recent weeks, presumably of the back of inflation figures, headlines over paying for cladding failures and broader stock market movements in the last week due to the increased global tensions.
As far as I am aware, RDW has no constructions that have fallen foul of the serious flammable cladding issue. With headlines suggesting the GOV was going to force House builders (in general) to pay for replacements, i wasnt sure if RDW had any real risk exposure on this front and does the current SP reflect a buying oppertunity.
I suppose some broad sector wide fee / tax / levy could be imposed on all builders to cover the costs, but I cant imagine firms like RDW (If they dont have any responsibility for putting up flammable cladding) would accept it without a fight.
Thoughts?
A really strong update. SP lower than in Nov -2017 but at the same time Net assets increased substantially. £7 price target is far too low. fair price looks to be around £10
Now predicting back to 2019 levels [almost]and that justifies sp of around £7 imv.
Smith, personally I think the last couple days took us into overbought territory and this is a normal retraction. The EOY results were (IMO) good, but certainly not amazing, and I will be pleased as long as we stay above 7GBP, and onwards from there.
Looking at the RSI over the last 6 months, I am erring on the side of slow and steady upwards growth from here.
Quite surprised with a drop of nearly 5% within 5 days.
I really wasn’t expecting the price action we saw yesterday and so far today!
Is this a reaction
Somewhere in the middle at £8, I’d be happy with that if the dividends keep on coming!
CREDIT SUISSE RAISES REDROW PRICE TARGET TO 745 (640) PENCE - 'OUTPERFORM'
DEUTSCHE BANK RAISES REDROW PRICE TARGET TO 800 (673) PENCE - 'BUY'
BARCLAYS RAISES REDROW PRICE TARGET TO 820 (810) PENCE - 'OVERWEIGHT'
JPMORGAN RAISES REDROW PRICE TARGET TO 850 (790) PENCE - 'OVERWEIGHT'
£1.94 billion. Somewhat shy of my prediction and short of 2019 overall performance as well.
I think I was expecting more given the housing market over the last year. Hmm.
Sept 15 (Reuters) - British homebuilder Redrow Plc said on Wednesday the housing market has moderated in recent months and it expects sales rates to return to historically average levels over the course of the current financial year.
The company, which started scaling back its London operations last year to focus on high-return regional businesses, also said its pre-tax profit for the 52 weeks ended June 27 was 314 million pounds ($433.95 million), compared with 140 million pounds a year earlier.
Simple equation input prices up output prices up
Maybe! That would be interesting. Since that one big jump when the rumour first came out I have not seen any other news about the possibility. So I guess they managed to stop anything else leaking, or it is just a rumour?
I wonder whether they will shed more light on the bid situation?!
Hi ilikehousebuilde,
I think earnings are going to be good, but the market is anticipating this and it is already reflected in the current SP. Like all other house builders, RDW will no doubt sound the alarm over the inflation of prices for raw materials eating into profit margins. Between this and (what I am hoping will be) a chunky dividend, I don't think the SP will gain any ground.
Hi,
What do you think about the results coming up and the effect on sp on the day? Interestingly although all hbuilders are up by upto 2% today rdw is the weakest at +0.7% even with all the bid rumours
Interesting reading - https://apple.news/AA26ctUvNQvyQOvo0ADsw_w
Makes reference to a 20% year on year increase in raw material costs.
But don’t worry, the BOA / BOE are sure that inflation is temporary ??
My pleasure Dimi123. I am interested to see if I am anywhere near the mark. Naturally I tend towards pessimism, but having been going through the rigours of trying to sell and buy a house for the last 8 months, I can attest to the near insane levels of market activity, especially in the last 4-6 months. (at least, in the not new build area of the market).
I hadn't really considered extra costs involved in exiting London. IIRC, the company was fairly vocal on its H1 results call this year about the good job they had done on pivoting to better target the demands of the current market (bigger houses / garden space etc). I don't have enough experience with RDW to know how much of a change they had to make from their previous business model.
Given the level of demand in the market overall and the lack of available housing, I dont think we will see a huge impact, unless the vast majority of their portfolio was based in inner city areas.
Marquess, thanks for the nice write up.
Regarding margin, TW were able to achieve a margin increase for the same period. They reported results few weeks ago. So personally, I'm hoping we won't see a drop in margins though I have to say TW were really focused on it. I don't remember seeing much about that in RDW's annual report.
On another note, RDW did mention several times about incurring extra costs due to exiting London. Is that still a factor? I know they kept the massive development in Colindale. Drove past it few weeks ago and it's looking lovely.
Hi all,
Interested to know the opinions of others with regards to the impact of the upcoming results, having watched the reaction to the results from Barratt.
A little bit of (very basic) math
In 2018, H1 revenue accounted for 46.4% of FY revenue.
In 2019, H1 revenue accounted for 46.2% of FY revenue.
2021 H1 revenue was £1.041B. Assuming this represents 46.3% of FY revenue, projected FY revenue hits £2.248B. (H2 Revenue projected at £1.207B)
Factors applied / to consider that may impact the results and forward projection above;
Applied - The Stamp Duty Holiday has had a consistent impact through FY 2021. I consider this to be highly likely.
Applied - Buyer activity has remained stable / consistent with previous annual patterns. I consider this to be highly likely.
To consider - Increased cost of materials will reduce margins. I consider this to be almost certain.
To consider - COVID related matters had a more significant negative impacted activity in H2 2021 when compared to H1. I consider this to be a realistic possibility.
To consider - The financial impact from the cladding crisis.I consider the chance of any significant impact from this to be highly unlikely. Based on my research and understanding of Redrow's business model it has very limited exposure to impacted structures.
Based on the above, I believe that;
It seems almost certain that RDW will achieve a revenue / net income beat of 2020.
It seems highly likely that RDW will achieve a revenue beat of 2019.
It seems almost certain that RDW will suffer from the increased costs of raw materials.
It seems likely that RDW will commit to a dividend payment that is at least equal to that of 2019.
It seems likely that the SP will not increase in any significant way. This is based on SP appreciation over the last 12 months and the likelihood of a significant dividend payment.
Language used is based on the probability yardstick. I am just a random person on the internet and this is entirely my opinion, and not advice. I am sticking with a hold rating at the moment.
What do you think I have missed / not considered? Do you agree or disagree? Would like to know what people think.
Bicarbonate rise.
Strictly, I think that Fund managers are just very obsessed by their next quarter or next half results, RDW at 900p could keep their job safe for a couple of years and generally they get very well paid so long as they can stay in position, so not really motivated to take the long view.
Strictly - I am sure that I have spoken to you before somewhere!
Surely - 'Vladimir, stop calling me Shirley!' - the fund managers who hold RDW would realise that 900p would be far too cheap. I know that fund managers have a poor record of realising the value of what they hold in this kind of potential situation, but RDW, with all that consistency of equity growth, 900p! surely not?
..............................
Valerie, sorry, Vlad, if we take stock market ownership of companies as being essentially the fund managers, then sadly they have serious previous for these situations...
The fund managers sold Debs to private equity at a bargain basement price in 2003, the PE boys stripped out all those splendid high street freeholds for leaseback, then still sold the shell back to the fund managers just three years later for more than they paid for it having also trousered £1.2 billion in divs...
And didn't Debs do well thereafter...?
Typing this, I've got the theme tune from the Muppets swirling round in my head....
That probably tells you something...?
And why do you suppose it might be different this time if it happens...?
It seems to me that either these fund managers live in some sort of parallel universe to the likes of you and me when it comes to assessing value, or that they're incompetent, or that there's something darker at play that we're not privvy to...?
But what do I know ~ I'm just a humble private investor, out in the boondocks down here on Dartmoor....? :-)
Strictly
Strictly - I am sure that I have spoken to you before somewhere!
Surely - 'Vladimir, stop calling me Shirley!' - the fund managers who hold RDW would realise that 900p would be far too cheap. I know that fund managers have a poor record of realising the value of what they hold in this kind of potential situation, but RDW, with all that consistency of equity growth, 900p! surely not?
I'd be very surprised to see Redrow taken out - myriad reasons but not least because it's a massively expensive way of buying land.
.........................................
And a seriously cheap way of buying long term high return on equity & growth....
And that's my concern, Oi Oi, so I'm keeping my fingers crossed it doesn't happen ~ as it's very bad news for us investors if one of the most invest-able players in the sector is taken out...
But no doubt it will be what it will be, and we, as minnows in the investing world, just have to suck it up....
Sadly...
Strictly