Redrow expects annual results to be at lower end of forecasts

North West housebuilder Redrow, said its 2024 revenues and profits will be at the lower end of expectations, in a pre-annual general meeting trading update this morning.

The group, based in Ewloe, near Chester, is holding its AGM at 10am. It updated the market on trading in the 18 weeks to November 3, 2023.

Chairman Richard Akers will tell shareholders this morning: “Following the usual summer slowdown we reported in our 2023 results announcement, the housing market has remained subdued through the autumn. The business has had to adapt to this more difficult trading environment in terms of build rate and operating costs. However, we continue with our strategy of delivering our high quality, award winning Heritage homes to our target customers.”

The group said the value of net private reservations in the period was 25% below the prior year at £384m (2023: £515m). Gross private reservations per outlet per week for the period were 0.49 compared with 0.63 last year – there were no bulk sales in either period.

However, while customers are generally financially resilient, with 35% of Redrow’s private customers being cash buyers, many of them are at the top of a house purchase chain. Currently the rate of breakdown of chains is elevated because of difficulties with mortgages lower down the chains.

This has caused the cancellation rate for the year to date to rise to 25% (2023: 22%) and resulted in a net weekly reservation rate of 0.36. This is an increase on the 0.34 for the first 10 weeks of the financial year, albeit it is below the 0.38 achieved for the first half of fiscal year 2023. The average selling price of private reservations in the period was 2.5% lower at £471,000, compared with £483,000 in the prior year.

The group has operated from an average of 125 outlets in the period (2023: 120). Due to the slower sales market, it now expects the average number of outlets for the full financial year will be around 113 rather than the 117 guidance issued in September.

While build cost inflation continues to abate, Redrow still expects overall build cost inflation will be around seven per cent for the current financial year given the inflation inherent in the opening work in progress.

Homes turnover for the period was 30% below last year at £456m (2023: £650m).

The total order book at November 3, is £864m, of which 66% is exchanged, compared with £1.36bn at the same time last year with 74% exchanged. For the current financial year, the group has already legally completed or exchanged around 58% of revenue (2023: 72%).

Due to improved timing of affordable legal completions, Redrow now expects the revenue profile for the current financial year to be more evenly split than originally anticipated, with 45% in the first half and 55% in the second half.

During the period, the group has added 277 plots to its current land holdings (2023: 724 plots). Due to the current economic uncertainty, it is being very selective and limiting its land buying and focusing on strategic land options.

Looking ahead, the group said it continues to expect its results to be in the guidance range given in September 2023 of revenue between £1.65bn and £1.7bn and profit before tax of between £180m and £200m. However, with the lower than anticipated sales rate due to the more subdued autumn housing market they are more likely to be towards the lower end of the range.

Redrow said its balance sheet remains strong and on November 3, 2023, it had net cash of £125m (November 4, 2022: £182m), following its £100m share buyback that concluded earlier in the year. It continues to expect to have net cash of more than £150m at the end of June 2024.

The business also announced this morning that Graham Cope will be retiring as group company secretary on December 31, 2023, having served in this role for 21 years. Beth Ford, deputy company secretary, will assume the company secretarial responsibility in the interim.

Richard Akers said: “On behalf of the board I would like to thank Graham for his contribution during his tenure as group company secretary and thank him for his long standing service.”

Shares in the group fell in early trading this morning, with stock hitting 485p per share, compared with a 496p opening price.

Russ Mould, investment director at Manchester-based investment platform, AJ Bell, said: “We know the housing market is in a bad place so Redrow’s disappointing trading update can be seen in that context. Despite a slowly improving picture on borrowing costs, mortgages are still expensive and there are other pressures on people’s spending power, and all of this is having an impact on demand.

“What paints things in a worse light for Redrow is several of its peer group have announced more solid performance over the last week or so and there have been some signs of stabilisation in property prices, too.

“For Redrow to then come out and say annual profit will be at the lower end of its forecast range is unsurprisingly going to draw a negative response from investors. It may suggest that Redrow’s area of focus – larger homes typically aimed at second or third-time homeowners – is proving a tougher market.

“At the same time, inflationary pressures are proving stubborn. Redrow and its rivals will be hoping the outlook has improved significantly by the time of the usual spring selling season next year. For now, all they can do is hunker down and wait for green shoots of recovery to appear.”