Berenberg still upbeat on Redrow despite 'tough year ahead'

Berenberg has retained a 'buy' stance on housebuilder Redrow despite cutting its profit forecasts, saying the stock is one of the more "attractively valued" in the sector.

"We see compelling asset-backed valuation metrics, which underpin our positive view," said analyst Harry Goad. The stock trades at 12 times current-year earnings and 0.8 times tangible net asset value.

Redrow reported on 13 September that full-year volumes were down 5% at 5,436 while selling prices rose 3% to £383,000 – leaving revenue more or less flat year-on-year. However, modest margin erosion led to a 4% drop in pre-tax profit to £395m.

Goad said that the company has a "tough year ahead": "The group’s June year-end meant that the FY23 result was relatively well insulated from the deterioration of the wider housing market, but the impact of this will be seen in the FY24 result."

For the coming year, Redrow is guiding to a pre-tax profit of £180-200m, implying a 52% drop year-on-year at the midpoint level. Berenberg itself is now cutting its profit estimates by 7% on average across the financial years ending 2024 to 2026.

Nevertheless, Goad pointed out that Redrow's balance sheet remains robust despite the challenging market backdrop. Net cash was £235m by the end of June, down from £288m a year before.

The stock was up 0.5% at 495.8p by 1402 BST.