Redrow PLC (LON: RDW) 

Redrow PLC is an FTSE 250 listed Company engaged in residential housing development. Moreover, the Company is involved in constructing homes throughout England and Wales. The Company's operations are focused on traditional family housing in its regional businesses and apartment schemes in Greater London.

Recent trend of dividend payments

• No Dividend in FY20: The Company had not paid any dividend during FY20 to support the Group's financial resilience.
• Dividend resumed in FY21: Nevertheless, RDW will pay a final dividend of 50 pence per share attributable for FY21 on 17 November 2021, while the ex-dividend date was 23 September 2021.
• Decent Pay-out Ratio: RDW normally pays dividend at a pay-out ratio of 33% of earnings following a pause in dividend payments last year.
  

Growth Prospects

• Strong Land Allotment: The Company had made accelerated progress regarding the land allotment as it added 8,300 plots to current land and 7,749 plots to the forward land during FY21. Moreover, RDW had added 1,400 plots to the current land holdings and 95 plots to the forward land holdings during FY22 as of 05 November 2021.
• Strengthening of Balance Sheet: Driven by the strong cash generation during FY21, the Company had switched into net cash of £160 million as of 27 June 2021, while it had reported a net debt of £126 million at the end of FY20.
• Decent Increase in Legal Completions: RDW had achieved 5,620 legal completions during FY21, while it had managed to deliver 4,032 homes in the prior year.

Key Risks

• UK GDP: The UK economy witnessed a slowdown as the GDP grew quarter-on-quarter by around 1.30% during Q3 2021, which remained merely lower-than-expected growth of around 1.50%.
• Supply Chain Disruption: The recent shortage of lorry drivers in the UK had created supply chain disruptions and escalated the freight cost.
• Wrong Strategic Choices: The failure of partner relationships could adversely impact the business in the near term.
• Weak Industry Trends: According to the leading industry experts, the UK house price witnessed a monthly drop of around 0.6% during November 2021.

Now, we will analyse the Key Fundamental Statistics & Shareholding Pattern of Redrow PLC.  

Morgan (Stephen Peter) is the most significant shareholder as it holds nearly 56.30 million shares as of 30 September 2021. 

AGM Trading Statement (for 19 weeks ended 5 November 2021 as of 12 November 2021)

• Strong Balance Sheet: The Company had net cash of £297 million as of 05 November 2021, while it had net cash of £150 million for the prior year’s period. Moreover, RDW had expected to report net cash of £200 million at the end of June 2022.
• Operational Progress: RDW had shown an increase in private revenue per outlet per week to £301,000 during the period.
• Bright Guidance: RDW had expected FY22 revenue to remain around £2.1 billion and operating margin to be approximately 19% for FY22.

FY21 Financial & Operational Highlights (for 52 weeks ended 27 June 2021, as of 15 September 2021)

(Source: Company result)

• Strong Top-Line Business: The Group’s revenue grew by around 45%, from £1.34 billion during FY20 to £1.94 billion for FY21. However, the FY20 revenues were adversely impacted by the pause in deliveries for most of the final quarter to comply with Covid-19 restrictions.
• Robust Increase in Profitability: RDW had shown around more than 100% jump in the profit before tax from £140 million during FY20 to £314 million for FY21.
• Record Order Book: RDW closed FY21 with a record order book of £1.43 billion as of 27 June 2021.
  

Financial Ratios (FY21)

Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 15 November 2021, at 08:31 AM GMT, RDW’s shares were trading at GBX 634.00, down by around 0.81% from the previous day closing price. Stock 52-week High and Low were 743.60 and GBX 492.40, respectively.

From a technical perspective, 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 stood at ~43.81 levels. 

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook

The record order book of RDW had provided an excellent platform for the future with over £1.3 billion of revenue already secured for FY22. Moreover, the average UK house price rose during October 2021 despite the end of the stamp duty holiday, reflecting positive industry dynamics. However, the Company remained cautious of logistics disruption, cost inflation pressures and unplanned Covid absences. In addition, the stock price may undergo adverse volatile movements amid rising inflation rates worldwide and increasing bond yields. In a nutshell, RDW remained confident to drive shareholder returns benefitted by a resilient business model and robust order book.

Considering the solid industry dynamics, strong top-line business growth, favourable turnaround into net cash position, robust profitability, resumption of dividend payments, and support from the valuation as done using the above method, we have given a “BUY” recommendation on Redrow PLC at the current price of GBX 634.00 (as on 15 November 2021 at 08:31 AM GMT), with lower-double digit upside potential based on 17.17x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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