1. UK Real Estate Industry Landscape

The Real Estate market in the UK encapsulates list of companies focused on buying and selling of own real estate, renting, and operating own or leased real estate and fee-based real estate services on a contract basis. Moreover, the overall industry can be bifurcated into two broader sub-sectors such as residential real estate and commercial real estate. The Residential Real Estate encapsulates activities such as selling, renting, and buying diverse categories of residential properties. Furthermore, the Commercial real estate process is considered one of the vital indicators to track the performance of the economy.

According to recently available data from the Office for National Statistics (“ONS”), the average UK house prices had shown an annual growth of around 10.8% for the 12 months period ended December 2021, while it was approximately 10.7% during November 2021. The average UK house price remained £275,000 in December 2021, £27,000 higher than this time last year.

Key Trends in the Real Estate Sector

Risk Exposures to the Real Estate Sector

• Federal Reserve Meeting: The Federal Reserve meeting scheduled for 16 March 2022 may result in the first interest rate hike since 2018. Thus, it may create pressure on global Equities.
• Ukraine Tension: The mounting concern over the Russian invasion in Ukraine can continue to weigh on the equity market.
• Macro-economic Uncertainty: Economic downturn and economic volatility can significantly impact the real estate market and consumer confidence.
• Reduction in consumer spending: The rise in unemployment levels and reduction in disposable income may cause a decline in consumer spending tendency, which could adversely impact consumer demand.

SWOT Analysis

Real Estate 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 record annual rate during February 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 sector, we would look at the business model of two Real Estate players listed on the London Stock Exchange. 

A. Redrow PLC (LON: RDW)

(Recommendation: Buy, Potential Upside: 15.74%, Market Capitalization: GBP 1.94 billion)

Redrow PLC (LON: RDW) is the FTSE 250 index listed United Kingdom-based housebuilder Company and is acknowledged as one of the famous residential housing developers in Wales and England.

RDW will pay an interim dividend of 10 pence per share on 08 April 2022, while the ex-dividend date was 24 February 2022.

One Year Share Price Chart

(Data Source: Refinitiv, Analysis by Kalkine Group)

From a technical standpoint, the stock price is hovering between the lower Bollinger band and the middle Bollinger band, indicating an upside potential in the stock price. The 14-days RSI stood at ~45.43 levels.

Valuation Methodology

Our illustrative valuation model suggests that the stock has an upside potential of 15.74% over the closing price of GBX 555.30 (as of 16 March 2022 at 10:45 AM GMT).

B. Springfield Properties PLC (LON: SPR)

(Recommendation: Speculative Buy, Potential Upside: 18.71%, Market Capitalization: GBP 167.47 million)

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

The Company will pay an interim dividend of 1.5 pence per share on 31 March 2022, while the ex-dividend date was 10 March 2022.

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis by Kalkine Group)

From a technical standpoint, the stock price is hovering between the lower Bollinger band and the middle Bollinger band, indicating an upside potential in the stock price. Moreover, the 14-days RSI of ~35.98 is approaching an oversold territory.

Valuation Methodology

Our illustrative valuation model suggests that the stock has an upside potential of 18.71% over the current price of GBX 140.00 (as on 16 March 2022 at 09:25 AM GMT).

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

Note 2: Investment decision should be made depending on the investors’ appetite on 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 subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which 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 5: ‘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.’ 

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 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 unfavorable movement in the stock prices.

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