It is of course talking its own book, but builder Redrow seems surprisingly confident house prices are not set for a crash this year. This despite rising unemployment and taxes, the prospect of an increase in interest rates, and weak consumer confidence.
In its first half figures the company reported a profit of £8.5m - compared to a £8.7m loss this time last year - with average selling prices up 16% to £170,500, and 1,312 sales completed in the period, up from 1,266.
Part of the turnaround has come from the company reverting to a more traditional housing style with the New Heritage range, which has an average selling price of £196,000. Chairman Steve Morgan - the founder of Redrow who returned to the top job in a boardroom coup in March 2009 - said the company had been transformed over the past two years (his time in charge of course). While he thought it was too soon to call how the key spring selling season would go, reservations in the first six weeks of the second half were well ahead of last year. Some of that was probably catch up from the subdued performance in the December freeze, so he said the figures should be treated with a degree of caution. But he added:
House prices have been stable for some considerable time now, and we do not share the pessimism of some commentators that there will be a major fall in house prices during the coming year.
Given the improved quality of our land bank, the roll out of the New Heritage collection and the unquestionable housing shortage, I feel Redrow is in good shape to continue to make progress.
We may be forgiven for calling Redrow "Ronseal" this morning, because it is doing exactly what it said on the tin. Under the guidance of Steve Morgan, John Tutte and Barbara Richmond, Redrow is being transformed to a family home orientated housebuilder.
We remain contrarian buyers of Redrow (76% of analysts are not buyers). It is our assessment that Steve Morgan will successfully turn Redrow's fortunes around and that today's results add weight to our assessment. In our view, while the jury remains out a value entry point remains open.
Redrow has reflected the current patterns of limited unit sales growth but high average selling price shift, and more so than most here. The New Heritage collection is vastly superior to the Debut and In the City ranges it has now almost entirely replaced.
But while the new product has begun to impact more heavily on output, we are surprised to see the margins coming out lower than the second half of last year, especially at the gross level. Without a clearer direction on margins we cannot see any basis for changing our forecasts at this stage.
The shares are close to the top of a trading range and we would sell or short at or above 140p.
Whilst we can see key positives in the statement, the stock remains the second most expensive housebuilder on a price to net asset value basis (behind Berkeley Group), trading on 0.90 times. This looks up with events to us and we reiterate our hold recommendation.
