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The Barratt Redrow (LSE:BTRW) mega-merger last year was designed to create one of the UK’s best housebuilding shares. It’s early days, but the move is off to a very strong start.
The FTSE 100 stock — which plans to build 22,000 new homes a year over the medium term — has said expected cost synergies are running ahead of target. Barratt’s also defied the broader gloom enveloping the housing market with forecast-beating profits growth.
The builder cheered investors again on Wednesday (17 September) with news of better-than-expected full-year earnings and a big dividend lift. The news pushed the Barratt share price 1.2% higher in midweek trading, to 370.6p per share.
Confidence in the wider housing market remains mixed as inflation rises and economic growth stalls. Barratt itself has been impacted by slower completions and legacy issues as well recently. Here I’m asking if today’s update suggests the housebuilder is a top buy to consider.
Profits beat
Marking its maiden full-year results after 2024’s merger, Barratt Redrow said adjusted pre-tax profits rose 1% in the 12 months to June, to £592m. This beat City estimates by roughly £10m and was thanks to cost synergies and some margin improvements.
The adjusted gross margin improved by 170 basis points over the year, to 15.7%.
Group cash dropped 11% from financial 2024, to £772.6m. But Barratt’s balance sheet remains one of the strongest in the business, encouraging it to raise the full-year dividend to 17.6p per share, up 8.6%.
… but completions disappoint
That’s a pretty decent turnout in my book. The trouble, though, is that the firm’s progress remains weighed down by tough conditions in the housing market.
Group completions fell to 16,565 in the last financial year, from 17,972, previously. This was lower than the forecast 16,800-17,200 homes.
The firm also said forward sales as of 24 August were lower, at 10,350 homes versus 10,398 at the same point in 2024. In better news, the total forward transaction value ticked up to £3.1bn from £3bn.
Uncertain outlook
Despite this, Barratt believes demand for its homes will spring higher over the coming financial year.
It expects completions growth to resume this financial year, and has targeted sales of between 17,200 and 17,800. It has said this assumes “no material change to market conditions because of economic or political changes” and “a normal autumn selling season“.
But any such pick-up is far from guaranteed as rising inflation muddies the outlook on future interest rates. Barratt itself also said “the extended period through to the Budget and related uncertainties around general taxation and that applicable to housing, has introduced additional risk“.
Is Barratt a buy?
So are Barratt shares a buy, then? This depends on an individual’s tolerance of risk and their preferred investing timeframe, in my view. Anyone looking to hold the company for the short-term may wish to think extremely hard given the threat of further turbulence.
But over the long term, I think the FTSE 100 builder is worth a serious look. Britain’s surging population means homes demand is tipped to boom over the next decade. And the government is relaxing planning rules to make it easier for builders to capitalise on this.
Last year’s merger gives Barratt Redrow the scale to make the most of this opportunity, too. On balance, I think it’s a top stock to consider.
