Redrow hoists dividend 50% as housing sales show little sign of slowing

Housebuilder Redrow added 50% to its dividend after enjoying strong growth in the first half of its financial year and beginning 2017 with a record order book and strong sales momentum.

In the six months to 31 December, the FTSE 250 company grew revenue 23% to £739m after upping housing completions 13% to 2,459.

The sales rate per outlet per week was 0.66, up 5% year-on-year.

Average selling prices increased 12% to £344,000 from £306,000 as the market continued to rise and a greater proportion of turnover was generated in the South of England, 47% compared to 38% in the first half of the previous year.

Profit before tax jumped 35% to £140m and earnings per share by the same percentage to 31p, leading to the board piling a couple more pennies on the interim dividend to 6p a share.

After acquiring East Midlands-based builder Radleigh Homes earlier this month, which was said to be an excellent fit due to its geographical location and its similar focus on the upper end of the market, Redrow also said in the medium-term it expected to grow sales to £1.9bn, keep operating margin at 19.5% and lift earnings per share to 77p in the 2019 financial year, implying PBT of £350m.

Radleigh brought 2,500 plots of land, of which 1,300 have planning permission, which will swell the group's 25,600-plot long-term pipeline.

Going into the second half the group had a closing order book of £897m, up 35% over the year as the value of private reservations increased 13% in the first half on a like-for-like basis.

The strong level of UK housing demand throughout the country, together with the government's commitment to increasing housing supply, gave chairman Steve Morgan "every confidence" in the growth strategy.

Shares in Redrow hit a one-year high on Wednesday morning, rising more than 4% to 471.2p and approaching 2015's post-crisis highs around 500p.

Broker Shore Capital said the gross margin increase to 25% from 24.2% and operating margin to 19.5% from 18.2% was one of the strongest seen in the sector.

Analyst Robin Hardy was not surprised guidance had been increased fairly materially, as expected due to previous consensus for 2019 revenue of £1.685bn had been "too cautious given the market climate, the amount of capital deployed and the group’s hunger for growth".

He said while the new guidance was only for 2019 he interpreted this "as a ramp up across all years, including the current year".