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I’m nonetheless extremely assured on the income outlook for the UK’s blue-chip housebuilding shares over the long run. It’s why I proceed to carry Barratt Redrow (LSE:BTRW) shares in my portfolio.
However circumstances stay difficult for the sector proper now, as illustrated by Barratt’s troubled buying and selling replace on Tuesday (15 July). Information of lower-than-expected completions and profits-sapping legacy points induced the corporate’s shares to tank.
Completions totalled 16,565 in the course of the 52 weeks to 29 June, it mentioned, attributable to “fewer worldwide and investor completions than anticipated in our London companies“. This missed a goal vary of 16,800-17,200 houses, and was down from 17,972 in monetary 2024.
It additionally introduced £248m value of recent expenses associated to “further legacy property liabilities” on the Redrow aspect. These embody £98m associated to fireside security and bolstered concrete body points, pushing income for the complete yr off line from earlier steering.
Given these issues, ought to I contemplate shopping for extra Barratt shares?
Market overreaction?
Stripping out these historic constructing points, buying and selling at Barratt Redrow has remained largely sturdy of late, even factoring in that completions miss. Chief govt David Thomas commented that buying and selling “has been impacted by client warning and mortgage charges not falling as rapidly as hoped.” However he went on so as to add that “our adjusted income are according to market expectations.”
The corporate additionally mentioned its ahead gross sales “continued to enhance” final yr. Complete ahead gross sales have been 9,835 houses as of June, versus 9,426 a yr earlier.
Value financial savings are additionally topping forecasts, it mentioned, following final summer season’s Barratt-Redrow merger. In fiscal 2025, the agency achieved annual synergies of £69m, which it mentioned alerts that it’s “properly on the best way to attaining our beforehand upgraded value synergy goal of a minimum of £100m“.
For the present monetary yr, the FTSE 100 agency expects whole completions of between 17,200 and 17,800. It additionally maintained its medium-term goal of twenty-two,000 new houses each year.
Wanting good
Tuesday’s replace reinforces fears that housebuilders are more likely to endure a bumpy restoration. These legacy points might throw up some extra unwelcome surprises within the close to time period. Weak UK financial development, and extended homebuyer warning, additionally proceed to threaten gross sales.
However I’m assured issues are trying up following a tricky few years for the housebuilders. Rates of interest ought to maintain falling, because the Financial institution of England responds to falling inflation and seeks to spice up the economic system. Intensifying competitors within the mortgage market must also assist purchaser affordability.
Wanting over the long run, I’m anticipating demand for Barratt’s newbuilds to rise strongly, pushed by inhabitants development and power houses shortages. Barratt has a robust stability sheet too to spend money on land to capitalise on this chance as properly (internet money was £772m in June).
What subsequent?
On stability then, my bullish outlook for Barratt and its friends stays intact. However will I be shopping for extra of its shares for my portfolio? The reply isn’t any, however that’s due to my already sizeable publicity to the UK housebuilding sector.
I additionally personal Persimmon and Taylor Wimpey shares and have oblique publicity by way of my holdings in brick producer Ibstock.
I feel the Footsie firm stays a lovely inventory for brand new buyers to contemplate. That mentioned, the prospect of additional near-term turbulence may not make it an appropriate share for risk-averse share pickers.
