Redrow Accelerates Volume Growth Amid House Price Inflation Expectations

Strategic Insights -

Redrow, a construction group, has pledged to accelerate volume growth despite forecasts of a slowdown in house price inflation. The company's enhanced land bank and high level of forward sales are expected to enable it to deliver growth exceeding its historical 6% average. Redrow has also reported a 10% rise in pre-tax profit in the first six months of the year and maintained its promise of a 20% jump in the dividend.

Key Takeaways:

  • Redrow expects to accelerate volume growth despite a slowdown in house price inflation, thanks to its enhanced land bank and high level of forward sales.
  • The company's operating margins rose from 18.4% to 19.5% in the six months to December 31, but are expected to be squeezed to around 17-17.5% due to a more moderate and sustainable house price growth.
  • Redrow has maintained a land bank of 16,100 plots, equivalent to three years, but has improved it to give a more balanced geographical spread.
  • The company has increased the emphasis on higher premium land in the south east, which has improved its capacity for delivering growth.
  • Redrow has reported record forward sales, with values up 56% to £330m and an increase in average selling prices from £146,500 to £152,700.
  • The company expects legal completions to be weighted towards the second half, due to its significant land bank and forward sales.
  • Redrow has a strong position to battle against any slowdown in house price inflation, having secured its sales forecast for this year.

Statistics:

  • Pre-tax profit rose 10% to £56.7m in the first six months of the year.
  • Sales increased 5% to £310.8m.
  • Operating margins rose from 18.4% to 19.5% in the six months to December 31.
  • Land bank totalled 16,100 plots, equivalent to three years.
  • Forward sales values rose 56% to £330m.
  • Average selling price increased from £146,500 to £152,700.

Sources:

  • "Redrow sold 1,456 homes in the UK in the first half of the year, a growth of 5% compared with the same period last year. The average price paid by buyers was £112,800, up 6% (£174,000 in London and the south-east)" (Source: [1])
  • "Redrow's pre-tax profits rose to £56.7m in the first six months, up 10 per cent on the same period last year. Its operating profit margin was 19.5 per cent, up from 18.4 per cent." (Source: [2])