Shares in Redrow plc (LON:RDW) slipped lower this morning after an unscheduled trading update, which included a precise forecast for full-year profit that one analyst thought could be the “peacock fanning its tail” after it had a bid for under-pressure housebuilding rival Bovis Homes PLC (LON:BVS) rejected recently.
In a note to clients, Shore Capital analyst Robin Hardy said: “Unscheduled and slightly unusual trading update with almost no detail but a precise indication of expected PBT for the current year.
“Rather than say that PBT for FY2017 is likely to be above consensus, it has published an exact figure of £306m, or rather that PBT will be at least that.”
He added: “That is above our estimate of £295m which was towards the top of the range and slight above the forecast from Redrow’s own brokers. So, we will be raising our FY2017F estimates but as there is no indication of whether this is a sustainable change or just a burst in trading, we will not change other years’ estimates or our fair value.”
But the analyst added: “If this the equivalent of the peacock fanning its tail in the hope that another swing at a Bovis offer will be more welcomed, we would still be cautious.
“We do not think that Redrow would really benefit from combining with Bovis, it could become a millstone and we are not convinced that any merger benefits would really realised. It might be good for Bovis’ shareholders, but we think it would be bad for Redrow’s.”
Hardy concluded: “We remain a buyer of Redrow for now but if there is a further attempt to align with Bovis we are almost certain to change this.”
In early trading, Redrow shares were 0.3%, or 1.3p lower to 492.0p.
In play …
Bovis Homes revealed on March 13 that it had rejected bids from Redrow and another smaller housebuilder Galliford Try (LON:GFRD) as it believed the offers undervalued its business
Redrow said its offer was worth the equivalent of 814p per Bovis share, made up of cash, shares and dividend payments.
Galliford Try proposed an all-share offer merger at a 7% premium to Bovis’ share price at close on the previous Friday, offering 886p per share.
The proposed takeovers followed January’s announcement that Bovis’ chief executive David Ritchie was stepping down in the wake of a December profit warning.
Bovis said it was continuing talks with Galliford Try but added that discussions with Redrow were over after it indicated it was not willing to improve the terms of its proposal.
However, Redrow indicated that it wasn’t ready to give up on its pursuit.
In a statement at the time, the group said it “continues to believe the potential combination offers a compelling opportunity to create a combined business with the scale and operational strength to compete more effectively in the growing UK housebuilding market”.