The homebuilder has all the main factors impacting its business acting in its favour, and even though the housing market is beginning to cool, the company is still in a strong position.
The government’s Help to Buy scheme, low interest rates and a steady rise in house prices helped Redrow reveal a record full-year profit in September. Annual net profit jumped by 91% as the average selling price and the number of completions increased by 13% and 28% respectively. The first three months of this financial year have gotten off to a good start, as the order book has risen by 19% and the average selling price has ticked up by 4%.
According to Halifax, UK house prices rose by 2% in January and that represented the largest increase in the month of January since 2009. Last year house prices rose by 8%, but the lender predicts a lower rate of growth this year and foresees a rise of 3-5%. Tighter mortgage lending policies that were introduced by the Bank of England will smooth out the waves in the property market and result in more stable prices. This will benefit Redrow in the long term as it will diminish the likelihood of a major property crash.
Interest rates in the UK are at historic lows and will remain so for the foreseeable future in light of the latest BoE minutes, which revealed all nine members voted in favour of keeping interest rates unchanged. The UK is running the risk of encountering deflation, and should this be the case it will push back the prospect of any interest rate rise even further.
Redrow will reveal its first-half numbers on Wednesday 11 February, and the consensus is for revenue of £559 million and net adjusted profit of £70 million. The second-half figures were well received, with revenue coming in at £501 million and net adjusted profit at £68 million; dealers were expecting £511 million and £57 million respectively.
The homebuilder will report its full-year figures in September, and the market is expecting revenue of £1.05 billion and net adjusted profit of £130 million. These forecasts represent a 21% rise in revenue and a 26% jump in net adjusted profit.
Equity analysts are very bullish on the stock, and of the 17 recommendations, 12 are buys and five are holds. The average target price is 354p, which is 21% above the current price. Investment banks are equally bullish on rival Taylor Wimpey, and out of the 19 ratings, 14 are buys and five are holds. The average target price is 151p, which is 10% above the current price.
The stock is receiving support at the 50-hour moving average of 287p, and if this level is held it will make 300p the target. A move below the 50-hour MA will bring the downside support at the 200-hour MA of 275p into play.