Barratt Redrow PLC's (LSE:BTRW) £400 million shareholder payout was a pleasant surprise to investors and analysts, winning broad support in the City on Wednesday, although brokers warned the housebuilder still faces another year of pressure on profit margins.
The group announced plans to replace most of its dividend with share buybacks after ending the year with net cash of about £772 million, well ahead of market expectations.
Stifel said the return, equivalent to about 10% of Barratt Redrow's market value, reflected the strength of its balance sheet and should support the shares.
The broker also highlighted annual completions and cash generation that both exceeded consensus forecasts.
Jefferies also welcomed the enlarged capital return but cautioned that underlying profitability remains under pressure.
It said lower selling prices in the order book, minimal house price inflation and build cost inflation of 3-4% could result in further margin erosion during the 2027 financial year despite savings from the Redrow integration.
Peel Hunt struck a similar note, saying guidance was for fewer average sales outlets than previously expected, coupled with higher administrative and interest costs, "implies downgrades" to profit forecasts as gross margins come under pressure.
Stifel, which has a 'buy' rating on the shares, said they "appear cheap", trading at just 0.6 times book value despite stronger-than-expected cash generation
