Numis upgrades Redrow to 'buy', lifts profit estimates

Numis upped its stance on housebuilder Redrow to 'buy' from 'add' on Wednesday following the recent share price fall and as it digested the company's first-half numbers.

Redrow posted a 26% jump in interim pre-tax profit to £176m on group revenue of £890m, up 20% from the same period a year ago. Earnings per share increased 27% to 39.5p and legal completions in the half rose 14% to 2,811, including the group's Croydon joint venture.

Meanwhile, the order book was up 5% to £1.05bn and the average selling price edged up 9% to £330,000, mainly thanks to the ongoing growth of Redrow's southern business.

Numis said the H1 results were stronger than it expected and lifted its estimate for 2018 pre-tax profit to £365m from £355m and its 2019 estimate to £401m from £395m.

The brokerage added that the 50% uplift in the dividend to 9p per share was bigger than expected and implies that Redrow is nearing its 3x cover target in 2018, nearly two years earlier than previous guidance of 2020.

"The results highlight that Redrow's past investment in land and WIP - rather than returning large amounts of capital to shareholders - is feeding through to strong levels of volume and profit growth. Sales so far in 2018 are in line with the strong comparative last year, and this, alongside the strong order book give us confidence in the out turn for the full year."

Numis left its 729p price target on the stock unchanged.

At 1025 GMT, the shares were up 3% to 611p.