Redrow PLC

Redrow Plc (LON: RDW) is prominent in the residential housing development in Wales and England. The company’s product range is mainly focused on regional businesses in Greater London and traditional family housing in its apartment schemes.

On 5^th February 2020, the company will announce the interim results.

Financial Highlights (for the 12 months ended 30 June 2019, £ million)

(Source: Annual Report, Company Website)

For the financial year ending 30th June 2019, the company’s revenue rose by 10 per cent to GBP 2.1 billion against the GBP 1.9 billion in FY2018, with homes revenue surged by 10 per cent to  GBP 2.1 billion and other revenue from land sales was GBP 21 million and also in line with the last year. In the financial year 2019, the gross profit stood at GBP 504 million versus GBP 469 million in FY2018. Gross margin declined by 50 bps from 24.4 per cent in FY2018 to 23.9 per cent in FY2019.

The company’s basic earnings per share for the year 2019 rose by 8 per cent at 92.3 penceagainst the 85.3 pence in FY2018. In FY2019, the reported return on capital employed remained flat at 28.5 per cent. Return on equity for the year 2019 reduced to 26.5 per cent against the 28 per cent in FY2018.

The operating cash inflow generated for the period was £371 million. The net cash balance surged to £124 million at the end of June 2019 from £63 million at the end of June 2018.

Share Price Performance

Daily Chart as at January-24-20, before the market closed (Source: Thomson Reuters)
Redrow PLC shares were trading at GBX 790 at the time of writing before the market close (at 10:00 AM GMT) on 24th January 2020 and were up by 0.89% versus the previous day closing price. Stock 52 weeks High and Low are GBX 798/GBX 527.50. The group’s stock is reflecting significantly higher volatility as against the benchmark index based on the company’s beta of 1.10.
Valuation Methodology

Conclusion

The trading for the first 18 weeks of the current financial year remained decent despite relatively weak demand in the wider housing market and ongoing Brexit uncertainty. In the first 18 weeks to 1st November 2019, the value of net private reservations increased by 2 per cent to £598 million, excluding a £119.5 million PRS sale at Colindale Gardens. On a like-for-like basis, the sales rate per week per outlet stood at 0.67, excluding the PRS sale. For the first eighteen weeks of the financial year 2020, the average selling price of private reservations, excluding the PRS sale, was almost the same from the previous year. The company’s outlet progress continues to be affected by a careful approach to land acquisition and planning delays. Presently, the company is working from 128 outlets. Overall, the order book increased by 8% to £1.3 billion.

The company’s financial performance has improved in the financial year 2019. The company operates in a challenging environment which requires continuous investment, sometimes at the cost of profitability, to stay ahead of competitors.  The company’s operations are impacted negatively due to the uncertainty created by the Brexit as it will result in an uncertain political and economic climate for short to medium term. Moreover, the company is trading near its 52-week high, raising doubts at its upside potential at current prices.

Based on the headwinds faced by the group and valuation as done above, we have given a "WATCH" recommendation at the current price of GBX 790 (as on 24th January 2020, before the market close), while we look for any upcoming catalysts in the near term.

Galliford Try Holdings PLC

Galliford Try Plc (LON: GFRD) is a UK based Household Goods company engaged in the business of housebuilding, regeneration and construction. Its areas of operation are categorised into segments like Linden Homes, Galliford Try and Morrison Construction. Its earlier name was Galliford Try PLC.

On 12^th March 2020, the company will announce the Half Year results.

Recent News
On 22^nd January 2020, the company has been restored to the PPC (Prompt Payment Code). This will help in an improvement in its payment performance. The company is now paying over 90 per cent of invoices within the code’s stipulated 60-day time limit.

On 20^th January 2020,the company has got 'Large Business' and 'Construction Company' awards at the NCFD (National Centre for Diversity) Grand Awards.

On 15^th January 2020,Vistry Group PLC, formerly known as Bovis Homes, incurred costs of approximately 15 million pounds in its acquisition of Galliford Try PLC’s Linden Homes and Regeneration and Partnership businesses.

On 3^rd January 2020,the company confirmed the appointment of Bill Hocking to take up the charge of Group’s Chief Executive role.

Trading Statement (as on 9^th January 2020)
The group released a trading update for the H1 FY 2020 period, with the disposal of the Partnerships & Regeneration and Linden Homes divisions of Galliford Try PLC on 3 January 2020. The Group progressedthe new year 2020 with high-quality order book of 3.2 billion pounds, and recent substantial contract wins comprising appointments to the YORCivil 4-year key framework for Sheffield Council, AMP7 for Southern Water, the A303 and A47 and improvement works for Highways England, the AMP7 for Yorkshire Water, and in the private sector, the prestigious Project Nash progress in central London for the Portman Estate. On pro forma basis, the company’s cash stood at £225 million at 31 December 2019, with average month-end cash balances for H2 FY2020 anticipated to be in excess of 100 million pounds. The underlying business is in line with management's anticipations for FY2020 and continues to perform well.  As earlier highlighted, the company anticipates performance to be weighted to H2 FY2020.

Share Price Performance
 
Daily Chart as at January-24-20, before the market closed (Source: Thomson Reuters)

Galliford Try Holdings PLC shares were trading at GBX 136.68 at the time of writing before the market close (at 8:50 AM GMT) on 24th January 2020 and were up by 1.73% versus the previous day closing price. Stock 52 weeks High and Low are GBX 887.00/GBX 103.00. The group’s stock is reflecting significantly lower volatility as against the benchmark index based on the company’s beta of 0.83.

Conclusion
With the recent decline in the share price on 3^rd January 2020, the dividend yield of the group surged significantly and currently stood at around 43.75%, which seems bit inflated.For the second quarter of 2020, the company’s production target stays on track with decent momentum in the business, reflected by the strength of the high-quality order book and a number of substantial wins through the first half of the year. The company expects performance to be weighted to the second half of the financial year.

The housing market has been constrained by low consumer confidence, largely driven by the ongoing uncertainty over Brexit, a reduction in direct Government spending on infrastructure projects such as schools, hospitals and transport, a reduction in indirect funding of social housing development. A failure to agree appropriate commercial terms or to manage fixed-price contracts effectively can result in costs not being recovered from its clients. The legal and regulatory environment in which the Group operates is complex with the failure to meet the build quality and service expectations of our clients.

 
Based on the above rationale, we have given a “Watch” recommendation at the current price of GBX 138.80 (as on 24th January 2020, before the market closed, GMT 8:00 AM).
 
*All forecasted data have been taken from Thomson Reuters.

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