Housebuilder Redrow plc (LON:RDW) achieved record 2017 results and said it was confident of another strong performance in the next financial year despite the challenges facing the housing market.
In the year to 30 June 2017, pre-tax profit rose 26% to £315mln compared to the previous year and revenue increased 20% to £1.66bn, driven by a 15% gain in legal completions to 5,416 and 7% growth in the average selling price to £309,800.
Shares rose 5.09% to 651.50p in morning trading.
The company, which bought Radleigh Homes in February, noted a reduction in transactions in UK housing market due to political uncertainty and an increase in stamp duty on second home purchases.
While it noticed a slowdown in the market in the first half following the Brexit vote, momentum returned in the second half.
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Redrow said demand for new homes remains robust and it is yet to see an impact from recent political events, including Brexit and the UK general election, as the sector is supported by low borrowing costs, low unemployment, and the government’s Help to Buy equity loan scheme.
Government needs to address issues in housing market, says Redrow
Still the group highlighted key issues that “need to be addressed by government to support future growth”, including the status of European Union workers after Brexit, plans for the Help to Buy scheme and the need to revitalise stalled planning reforms.
The government has committed to Help to Buy until 2021 but is said to be reviewing the programme with the possibility of scrapping it or introducing a tapering system.
“Notwithstanding the need to address these issues, we are in a strong position to both deliver another set of record results in 2018 and to meet the ambitious targets we have set for 2020,” said chief executive John Tutte.
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Redrow lifts dividend 70% as it makes good start to new year
Redrow hiked its full year dividend by 70% to 17p as it started the new financial year with a record order book, up 14% to £1.1bn. Sales in the first nine weeks of the 2018 fiscal year are up 8%.
"Based on the strength of our current performance and the robust demand that we are seeing, we are today updating our medium term guidance,” said chairman Steve Morgan.
“We now expect turnover in 2020 of about £2.2bn and pre-tax profit of £430m. We expect the dividend in 2020 to rise to 32p per share.”
Morgan also announced that he will ease back from his full time executive role towards a non-executive chairman position, which is expected to happen over the course of the 2018 financial year.
Attractive dividend yield may catch investors' eyes, says analyst
Russ Mould, investment director at AJ Bell, said Redrow’s 2020 dividend guidance is enough to put the stock on a 5.2% dividend yield, based on yesterday’s closing price. The attractive dividend yield may catch the eye of income seekers, he said.
“That valuation metric could tempt some, especially as Redrow is also one of the cheaper house builders based on earnings and asset value per share (even if its near-term yield compares less favourably to that offered by most of its FTSE 350 peers)," Mould said.
He added: “Analysts and economists continue to fret about Brexit but strong full-year results from builder Redrow make it clear that people still need homes to live in, whatever the political situation,” Mould said.
Liberum repeated a ‘buy’ rating on the sock and a target price of 601p, saying that full year profits were in line with its exepctations.
“With today's extended guidance, we find the valuation compelling as the Group aims to deliver double digit earnings per share growth over the next three years and starts to re-align its dividend payout with the rest of the sector,” the broker said.