This report is an updated version of the report published on 11 May 2022 at 08:57 AM GMT+1

Real Estate & Homebuilding Sector: UK House Price Rose Again in April 2022

1. UK Real Estate & Homebuilding Sector Landscape

The real estate sector in the United Kingdom mainly comprises of private homes and commercial spaces. Private homes comprise the bulk of the UK properties, and the remainder is made up of commercial property which includes offices, shops, warehouses, data centers, hotels, etc. Some of the well-known names in the UK building construction industry include Barratt Developments PLC, Taylor Wimpey PLC, and Persimmon PLC.

The sector is one of the fundamental building blocks of the economy and employs over millions of people. As per the recent data from the mortgage lender, Halifax, house prices in the UK rose again in April 2022, thereby extending its longest run of monthly increases since 2016. The average cost of homes has reached a record of £286,079 in April 2022, post a 1.1% rise in prices.

Key Trends in the Real Estate & Homebuilding Sector

Risk Exposures to Real Estate & Homebuilding Sector 

• COVID Impact: The COVID pandemic has severely impacted the housing market with disruption in supply chains.
• Inflation Concerns: Inflation has been reported at 7% in March 2022, and there is a probability of inflation levels going up in the near term. Thus, the material prices are expected to remain inflated in the near term.
• Labor Risk: The housing industry is a capital-intensive sector and is dependent on the skills of its workforce. Any challenge in the availability of the same, can lead to a resource crunch and impact the operations.

SWOT Analysis

Real Estate & Homebuilding Sector Outlook

The UK housing real estate market is fragmented due to low market share concentration. Moreover, it is facing a shortage of houses or new constructions, which has led to higher demand. However, the geopolitical issue between Russia & Ukraine would like to adversely impact the confidence, trade, and global supply chains. According to the mortgage lender, Halifax, the UK house price grew at a decent annual rate during April 2022. Several factors such as soaring UK inflation rates and a high probability of a further increase in interest rates would add squeeze on already stretched household incomes and bring down the market activity to normal levels. Hence, the house price growth may ease down gradually during 2022.

2. Investment analysis and stocks under discussion (RDW and SPR)

After gaining insights into the Real Estate & Homebuilding sector, we would look at the business model of two players listed on the London Stock Exchange.

A. Redrow PLC (LON: RDW)

(Recommendation: Buy, Potential Upside: ~16.77%, Market Capitalization: GBP 1.78 billion)

Redrow PLC (LON: RDW) is an FTSE 250 listed residential property developer, which operates through 14 operational divisions across the United Kingdom.

One Year Share Price Chart

(Data Source: Refinitiv, Analysis by Kalkine Group)

From a technical standpoint, the stock is hovering near the lower Bollinger band with a 14-day RSI level of ~34.10.

Valuation Methodology

Our illustrative valuation model suggests that the stock has an upside potential of 16.77% over the current price of GBX 499.62 (as of May 11, 2022, at 08:20 AM GMT+1).

B. Springfield Properties PLC (LON: SPR)

(Recommendation: Speculative Buy, Potential Upside: 17.79%, Market Capitalization: GBP 157.04 million)

Springfield Properties PLC (LON: SPR) is an FTSE AIM All-Share listed leading housebuilder in Scotland that offers private and affordable housing.

One Year Share Price Chart

(Data Source: Refinitiv, Analysis by Kalkine Group)

From a technical standpoint, the stock is trading close to its lower Bollinger band, with a low 14-day RSI level of ~17.29.

Valuation Methodology

Our illustrative valuation model suggests that the stock has an upside potential of 17.79% over the current price of GBX 131.10 (as of May 11, 2022, at 08:20 AM GMT+1).

 Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.

Note 3: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 4:  Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.

Note 5: Dividend Yield may vary as per the stock price movement.

 

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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