Leading British homebuilder Redrow has issued a somber projection for fiscal 2024, expecting its profits to plummet by more than half. This announcement comes on the heels of the company’s recently reported 4% decline in annual earnings, a figure that surpasses earlier estimates. The housing sector in the United Kingdom is grappling with a pronounced slowdown, casting a shadow over the industry’s financial outlook.
Economic Headwinds Impacting Redrow
Redrow’s cautionary statement aligns with growing concerns about the broader British economy and the impact of rising interest rates. These factors have led to an increase in mortgage borrowing costs, subsequently dampening buyer demand and putting a strain on housebuilders’ profitability and construction targets.
Recent data on Britain’s property market has revealed a significant decline in house prices, marking the steepest decrease since the 2009 financial crisis. Simultaneously, there has been a noticeable reduction in mortgage loan demand.
Bank of England’s Data Reflects Challenging Times
Data from the Bank of England, which has raised interest rates 14 times since December 2021 in an attempt to curb inflation, underscores the challenges faced by the housing market. The statistics show that the value of residential mortgages in arrears surged to the highest level in seven years during the three months leading up to June.
Redrow’s Chairman, Richard Akers, commented on the situation, stating, “While the market did experience a partial recovery in the spring of 2023, the subsequent increase in mortgage rates, coupled with the cost of living crisis, has kept the market subdued.”
Market Reaction
In response to Redrow’s announcement, the company’s shares experienced a 1.7% decline in early trading.
Analysts at Jefferies offered their perspective, writing in a note, “Redrow’s FY23 results provide a reassuring statement. The skew in completions and margins for the start of the 2024 calendar year implies that we may need to wait for the ‘turn’ in reported earnings, but perhaps we are nearing a turning point in expectations.”
Future Profit Projections
Redrow, listed on the FTSE 250, has forecasted profit before tax in the range of £180 million to £200 million (approximately $224.2 million to $249.1 million) for fiscal 2024.
The Wales-based builder, known for constructing larger houses compared to its rivals, with a focus on second or third-time movers, reported an underlying profit before tax of £395 million for the full fiscal year that ended on July 2. This figure exceeded the consensus estimates of £367 million compiled by the company’s analysts.
(Note: All currency conversions are based on an exchange rate of $1 = £0.8028 pounds)
This development underscores the ongoing challenges faced by the UK’s housing market, with Redrow’s cautious outlook reflecting the broader economic uncertainty.
