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Barratt Redrow (LSE:BTRW) shares have spiked at present (12 February) after the builder raised its full-year revenue forecasts.
At 461.8p per share, Barratt’s share worth was nearly 5% greater simply after noon and the FTSE 100‘s largest riser, having risen even additional earlier.
So what’s been occurring on the UK’s largest housebuilder? And is now the time to contemplate investing?
Sturdy restoration
Bettering homebuyer affordability has revilatised houses demand from the second half of final yr. That is due to a mixture of current Financial institution of England (BoE) rate of interest cuts and fierce competitors within the mortgage market.
Encouragingly, Barratt Redrow’s buying and selling replace at present exhibits that the upturn stays robust at first of 2025.
Revenues rose 23.2% within the six months to December, to £2.3bn, whereas underlying pre-tax revenue elevated 6.4% to £167.1m.
Its web personal weekly reservation charge improved to 0.6 from 0.45 in the identical 2023 interval. And reservations have remained sturdy since then, Barratt mentioned, additionally averaging 0.6 between 30 December and a pair of February.
Ahead gross sales dropped to 10,903 houses as of two February from 11,460 a yr earlier. However the worth of those gross sales improved to £3.4bn from £3.1bn beforehand.
Now for the updates
Stable reservation exercise because the New Yr imply that Barratt now expects “to ship whole residence completions of between 16,800 and 17,200” within the full monetary yr (to June 2025). Completions rose 10.9% within the first half of the yr, to six,846.
Pre-tax revenue, in the meantime, is tipped to be “in the direction of the higher finish” of a market projection of £506m to £588m.
Elsewhere, the group mentioned that it now expects value synergies following final yr’s Barratt-Redrow tie-up to be £100m, some £10m forward of prior forecasts.
Nonetheless…
Barratt’s information has been the choose of a number of sturdy housebuilder updates because the begin of 2025. However whereas the enterprise strikes a optimistic tone, the market nonetheless faces uncertainty because the UK economic system stagnates and Stamp Obligation adjustments from this April loom.
There’s additionally the continued downside of value inflation, which pulled the agency’s adjusted gross margins down 1.1% within the first half, to 14.9%.
However on stability, issues look good for Barratt because the BoE takes a extra enthusiastic method to rate of interest cuts. As many as 4 charge reductions are presently anticipated by the market this yr, pulling the central financial institution’s lending benchmark to 4% and even decrease by the tip of December.
Competitors within the mortgage market additionally continues to warmth up, which is sweet information for debtors.
To purchase or to not purchase
Does all this make Barratt Redrow shares a great funding although?
The enterprise is clearly making robust progress in an bettering market. And the housebuilder’s long-term outlook stays sturdy, underpinned by the UK’s power ongoing houses scarcity that’s supporting costs.
My concern, nonetheless, is that the excellent news is now baked into Barratt’s valuation. Following at present’s good points, its price-to-earnings (P/E) ratio sits at a cumbersome 20.6 occasions.
This means to me that the excellent news could go away little room for additional share worth rises. A excessive P/E ratio like this will additionally immediate a pointy worth reversal if buying and selling circumstances deteriorate once more.
I plan to hold onto my very own Barratt shares. However at present costs I’m not tempted so as to add extra to my portfolio.
