Bank trims profit forecasts as tougher first-half trading hits margins and the order book, but keeps Buy rating on expectations of outlet growth and scope for a housing market re-rating
Barratt Redrow PLC (LSE:BTRW) shares were left digesting a fresh downgrade from Deutsche Bank after the housebuilder reported a weaker first half last week, in which profit fell and the company cut its dividend.
Deutsche cut its target price for the shares to 454p from 536p, while retaining a 'buy' rating. The shares fell 2.6% to 378.9p.
Its analysts said first-half results were “broadly in line with expectations” but said “tough trading through H1 has put pressure on margins and the order book”.
They reduced their underlying profit before tax forecasts by 9% for the year to June 2026, 6% for 2027 and 7% for 2028, reflecting what it sees as weaker near-term profitability.
Management’s targets for outlet growth, alongside improving margins, should support above-average profit growth over the next few years, even after the forecast downgrades.
Deutsche said that a more optimistic outlook was “tempered” by Barratt Redrow’s £1.3 billion provision balance, which it said would depress cash generation.
It pointed to the cash impact from fire-safety remediation as a driver behind Deutsche Bank’s higher discount rate in its valuation, which it increased to 10% from 8% to better reflect historical averages and the expected drag from remediation spending.
Deutsche said its forecast return on tangible equity for 2028 of 8.5% suggested Barratt Redrow’s 0.79 times price-to-net tangible assets rating was “broadly in the right place”.
However, the bank argued that the prospect of improving market conditions could justify a higher rating, and Millington said this could be “possibly supported by a government demand side initiative”.
Deutsche said its revised 454p target price was in line with its valuation methodology and represented a 15% reduction, which it attributed to the earnings downgrade and the higher discount rate.