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1. Company Snapshot

1.a. Company Description

Barratt Developments plc engages in the housebuilding and commercial development businesses in Great Britain.It acquires and develops land; plans, designs, and constructs homes, apartments, penthouses, and communities; and retail, leisure, office, industrial, and mixed-use properties.The company offers homes under the Barratt Homes, David Wilson Homes, and Barratt London brands.


It is also involved in the commercial development activities under the Wilson Bowden Developments brand name.The company was incorporated in 1958 and is headquartered in Coalville, the United Kingdom.

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1.b. Last Insights on BDEV

Barratt Developments plc's recent stock performance was negatively impacted by a decline in UK housing market sentiment. The company's Q3 2023 results showed a 4.5% decrease in average selling prices, partly due to a slowdown in the UK housing market. Additionally, the company's net private sales rate decreased by 10.3% year-over-year, indicating a decline in demand. Furthermore, the company's cash and cash equivalents decreased by £1.2 billion, partly due to a £1.1 billion share buyback program, which may have reduced the number of outstanding shares but also depleted the company's cash reserves.

1.c. Company Highlights

2. Barratt Redrow's FY '25 Earnings: Strong Performance Amidst Challenging Market

Barratt Redrow achieved a total home completion of 16,565, down 7.8% due to fewer outlets, but maintained an adjusted gross profit of GBP 970.3 million with a 30 basis point margin improvement. The company's adjusted operating profit rose 2.9% to GBP 595.4 million, driven by cost synergies and pricing. Adjusted EPS was 30.8p, supporting an 8.6% dividend increase to 17.6p. The actual EPS came in at 0.0469, below estimates of 0.09338.

Publication Date: Sep -18

📋 Highlights
  • Adjusted Operating Profit Growth:: Increased 2.9% to GBP 595.4 million with 50 bps margin improvement from cost synergies and pricing.
  • Cost Synergies Exceed Target:: GBP 20 million achieved in FY '25, exceeding initial target, with GBP 69 million cumulative confirmed.
  • Dividend Increase:: 8.6% rise to 17.6p/share, supported by adjusted EPS of 30.8p and GBP 591.6 million adjusted pre-tax profit.
  • Land Bank Margin Improvement:: Gross margin climbed to 19.2%, with GBP 181 million invested in new land acquisitions.
  • Strong Net Cash Position:: GBP 773 million retained post-dividends, buybacks, and building safety costs, reflecting robust liquidity.

Financial Highlights

The company's adjusted profit before tax was GBP 591.6 million, slightly above guidance. Cost synergies reached GBP 20 million, exceeding the initial FY '25 target, with GBP 69 million confirmed overall. Revenue synergies are progressing, with 9 planning permissions granted from 25 applications. The company's net cash position remains strong at GBP 773 million after dividends, share buybacks, and building safety remediation spending.

Valuation Metrics

With a P/E Ratio of 39.19 and an EV/EBITDA of 22.89, the market appears to be pricing in significant growth expectations. The company's ROE (%) is 2.07, and ROIC (%) is 3.66, indicating room for improvement in returns. The Dividend Yield (%) is 3.75%, providing a relatively stable return for shareholders.

Outlook and Guidance

Barratt Redrow expects to invest in its business to drive future growth, with a focus on land acquisition, development, and innovation. The company anticipates adjusted administrative costs of GBP 400 million and a finance charge of around GBP 50 million. Land spend is expected to be between GBP 800 million and GBP 900 million, reflecting replacement level land acquisition.

Operational Updates

The company is positive about the Scottish market, having recently acquired sites from Springfield and seeing opportunities in the private rental sector. Barratt Redrow is also focusing on timber frame construction, with 95% of its work in Scotland using this method. The new factory in Derby is progressing well, and the company anticipates reaching a capacity of 9,000 frames across both factories.

Challenges and Opportunities

Regarding affordable housing, the company anticipates an increase in the proportion of affordable homes built, driven by planning policies. However, funding remains a significant challenge. The company is also monitoring the proposed government changes impacting PRS and remains optimistic about the future of PRS.

3. NewsRoom

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The best stocks to buy in the UK, according to Barclays

Oct -17

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Monthly mortgage payments surged by over £350 in past five years

Oct -11

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More than £1bn wiped off housebuilder Vistry's value after profit warning

Oct -08

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UK CMA approves Barratt Developments’ acquisition of Redrow

Oct -07

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Form 8.3 - SEGRO plc

Oct -07

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UK house prices rise for third straight month amid falling mortgage rates

Oct -07

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3 UK Stocks Estimated To Be Trading At Up To 42.1% Below Intrinsic Value

Oct -07

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UK's fastest selling property market revealed

Oct -03

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4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (2.39%)

6. Segments

Private Residential

Expected Growth: 2.5%

Barratt Developments plc's Private Residential segment growth of 2.5% is driven by increasing demand for new homes, government initiatives such as Help to Buy, and a focus on affordable housing. Additionally, the company's strategic land banking and partnerships with housing associations support growth. Furthermore, the segment benefits from a strong brand reputation and a diverse geographic presence across the UK.

Affordable Residential

Expected Growth: 1.8%

Barratt Developments plc's Affordable Residential segment growth of 1.8% is driven by increasing demand for affordable housing, government initiatives to boost home ownership, and strategic partnerships with housing associations. Additionally, the company's focus on brownfield site development and efficient construction processes have improved margins, contributing to the segment's growth.

Commercial

Expected Growth: 1.2%

Barratt Developments plc's 1.2% commercial segment growth is driven by increasing demand for commercial spaces, strategic land acquisitions, and partnerships with local authorities. Additionally, the company's focus on mixed-use developments and regeneration projects contributes to growth. Furthermore, the UK's growing economy and infrastructure investments also support the segment's expansion.

Planning Promotion Agreements

Expected Growth: 0.8%

Barratt Developments plc's 0.8% growth in Planning Promotion Agreements is driven by increasing demand for new homes, strategic land acquisitions, and partnerships with local authorities. Additionally, the company's focus on brownfield redevelopment and urban regeneration projects contributes to its growth. Furthermore, the UK government's initiatives to boost housing supply and infrastructure development also support the company's expansion.

Other

Expected Growth: 1.5%

Barratt Developments plc's 1.5% growth in 'Other' segment is driven by increasing demand for mixed-use developments, strategic partnerships, and expansion into new regions. Additionally, the company's focus on sustainable and energy-efficient homes, as well as its investment in digital platforms, contributes to this growth.

7. Detailed Products

New Homes

Barratt Developments plc builds and sells new homes across the UK, offering a range of properties from apartments to detached houses.

Part Exchange

Barratt Developments' Part Exchange scheme allows customers to trade in their existing home as part of the purchase of a new Barratt home.

Assisted Move

Barratt Developments' Assisted Move service helps customers sell their existing home, providing a smooth transition to their new Barratt home.

Barratt Homes for Sale

Barratt Developments offers a range of new homes for sale across the UK, including apartments, houses, and bungalows.

David Wilson Homes

David Wilson Homes is a premium brand of Barratt Developments, offering high-quality homes in desirable locations.

Wilson Bowden

Wilson Bowden is a strategic land and planning business, identifying and acquiring land for development.

8. Barratt Developments plc's Porter Forces

Forces Ranking

Threat Of Substitutes

The threat of substitutes for Barratt Developments plc is medium due to the availability of alternative housing options such as apartments and condominiums.

Bargaining Power Of Customers

The bargaining power of customers for Barratt Developments plc is low due to the lack of negotiating power of individual homebuyers.

Bargaining Power Of Suppliers

The bargaining power of suppliers for Barratt Developments plc is medium due to the presence of multiple suppliers of building materials and labor.

Threat Of New Entrants

The threat of new entrants for Barratt Developments plc is low due to the high barriers to entry in the UK housing market, including regulatory hurdles and high capital requirements.

Intensity Of Rivalry

The intensity of rivalry for Barratt Developments plc is high due to the presence of several established competitors in the UK housing market, leading to intense competition for market share.

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

Value
Debt Weight 11.44%
Debt Cost 6.16%
Equity Weight 88.56%
Equity Cost 11.77%
WACC 11.12%
Leverage 12.92%

11. Quality Control: Barratt Developments plc passed 7 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Stock-Card
Berkeley

A-Score: 6.1/10

Value: 7.8

Growth: 4.1

Quality: 7.5

Yield: 6.9

Momentum: 2.5

Volatility: 8.0

1-Year Total Return ->

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Stock-Card
Persimmon

A-Score: 4.9/10

Value: 7.0

Growth: 1.4

Quality: 5.2

Yield: 8.8

Momentum: 1.5

Volatility: 5.3

1-Year Total Return ->

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Stock-Card
Redrow

A-Score: 4.9/10

Value: 6.7

Growth: 3.8

Quality: 7.4

Yield: 4.4

Momentum: 4.0

Volatility: 3.0

1-Year Total Return ->

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Stock-Card
Taylor Wimpey

A-Score: 4.7/10

Value: 4.4

Growth: 1.6

Quality: 5.1

Yield: 8.8

Momentum: 1.5

Volatility: 7.0

1-Year Total Return ->

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Stock-Card
Bellway

A-Score: 4.5/10

Value: 6.2

Growth: 1.6

Quality: 5.9

Yield: 5.6

Momentum: 2.5

Volatility: 5.3

1-Year Total Return ->

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Stock-Card
Barratt Developments

A-Score: 4.5/10

Value: 3.1

Growth: 1.3

Quality: 5.0

Yield: 7.5

Momentum: 3.5

Volatility: 6.3

1-Year Total Return ->

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

4.61$

Current Price

4.62$

Potential

-0.00%

Expected Cash-Flows