Full-year underlying revenue rose 6.6% to £6.1bn, driven by a 5.0% uplift in new home completions to 17,667 and a smaller contribution from higher average selling prices.
Adjusted pre-tax profits fell 7.1% to £0.6bn, slightly ahead of market expectations. The decline came as margins were squeezed by build cost inflation of about 2% and the increased use of buyer incentives.
Free cash flow rose from £13mn to £428mn, driven by generating cash from its existing land inventory and cutting back land investment. The net cash position remained broadly flat at £0.8bn, excluding land creditors of £0.7bn.
Full-year completions guidance was trimmed slightly to between 17,500-17,900 new homes. Build cost inflation is expected to be 3-4%.
A final dividend of 1.0p per share was announced. Shareholder return guidance for 2027 is unchanged, with £0.4bn planned primarily through share buybacks.
The shares rose 7.6% in early trading.
Our view
Barratt Redrow’s full-year results profits landed slightly ahead of market expectations, which buoyed markets on the day. But the outlook remains challenging, with UK house prices trending lower, build cost inflation accelerating, and signs of soft demand, full-year completion guidance has been reined back a touch.
Operationally, Barratt has been doing well. The full integration of Redrow is now complete, bringing a host of cost savings as overlapping operations were trimmed. Further cost savings are still expected this year, albeit at a slower pace, as its enlarged scale should help it to secure slightly better prices for building materials.
Bringing Redrow into the fold has increased both its geographical reach and the different types of customers it appeals to. The Redrow brand focuses on larger, higher-quality homes for more affluent buyers, which boosted average selling prices last year and helped relieve some pressure on margins.
However, the housing market is currently being hampered by macroeconomic uncertainty. The ongoing Middle East conflict is already pushing up material and labour costs, and that’s expected to continue this year. The outlook for mortgage rates has also deteriorated, which is likely to further test affordability for prospective buyers.
In the meantime, buyer incentives (like part-exchange and a Barratt-funded deposit boost) are being used to drive demand and are expected to remain elevated this year. Alongside rising building costs and a softer pricing environment, that could put further pressure on margins and near-term profits.
Zooming out, there’s still a pressing need for new homes in the UK, so the long-term demand outlook remains favourable. In time, recent government-led planning reforms should help boost housing delivery. But Barratt is still calling on the government to do more to help unlock supply and make it easier for first-time buyers to get on the ladder.
Barratt is doing what it can to weather the storm, with land spending being reined back to help preserve its healthy £0.8bn net cash position (excluding land creditors) – a move we approve of.
Given the current valuation weakness, we’re also pleased to see the group’s payout policy shift to a greater focus on share buybacks. So although the payout ratio remains the same, the dividend yield is likely to drop from the mid-single-digit level seen recently. As always, shareholder returns can go down as well as up.
All things considered, Barratt is in good shape with a strong balance sheet and formidable scale. The valuation has come down sharply since the Iran conflict began, which we think underappreciates Barratt’s long-term prospects. But it could be a while before macroeconomic conditions turn more favourable, so potential investors will need plenty of patience.
Environmental, social and governance (ESG) risk
Most housebuilders are relatively low risk in terms of ESG, particularly for those in Europe. However, there are some environmental risks to consider, from direct emissions to the impact of their buildings on the local ecology. The quality and safety of their buildings is also a key risk.
According to Sustainalytics, Barratt Redrow’s management of ESG risk is strong.
Commitments are in place to deliver net zero houses by 2030 through a combination of energy-efficient equipment, the use of renewables and the establishment of alternative heating technologies. Although Barratt reports that all its revenues come from sustainable products, the total portion of recycled materials used in its operations is undisclosed.
Barratt Redrow key facts
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This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.