Should I buy more Barratt shares after yesterday’s price collapse?
I’m still highly confident on the profits outlook for the UK’s blue-chip housebuilding shares over the long term. It’s why I continue to hold Barratt Redrow (LSE:BTRW) shares in my portfolio.
But conditions remain tricky for the sector right now, as illustrated by Barratt’s troubled trading update on Tuesday (15 July). News of lower-than-expected completions and profits-sapping legacy issues caused the company’s shares to tank.
Completions totalled 16,565 during the 52 weeks to 29 June, it said, due to “fewer international and investor completions than expected in our London businesses“. This missed a target range of 16,800-17,200 homes, and was down from 17,972 in financial 2024.
It also announced £248m worth of fresh charges related to “additional legacy property liabilities” on the Redrow side. These include £98m related to fire safety and reinforced concrete frame issues, pushing profits for the full year off line from earlier guidance.
Given these problems, should I consider buying more Barratt shares?
Market overreaction?
Stripping out these historical building issues, trading at Barratt Redrow has remained largely robust of late, even factoring in that completions miss. Chief executive David Thomas commented that trading “has been impacted by consumer caution and mortgage rates not falling as quickly as hoped.” But he went on to add that “our adjusted profits are in line with market expectations.”
The company also said its forward sales “continued to improve” last year. Total forward sales were 9,835 homes as of June, versus 9,426 a year earlier.
Cost savings are also topping forecasts, it said, following last summer’s Barratt-Redrow merger. In fiscal 2025, the firm achieved annual synergies of £69m, which it said signals that it’s “well on the way to achieving our previously upgraded cost synergy target of at least £100m“.
For the current financial year, the FTSE 100 firm expects total completions of between 17,200 and 17,800. It also maintained its medium-term target of 22,000 new homes per annum.
Looking good
Tuesday’s update reinforces fears that housebuilders are likely to endure a bumpy recovery. Those legacy issues may throw up some more unwelcome surprises in the near term. Weak UK economic growth, and prolonged homebuyer caution, also continue to threaten sales.
But I’m confident things are looking up following a tough few years for the housebuilders. Interest rates should keep falling, as the Bank of England responds to falling inflation and seeks to boost the economy. Intensifying competition in the mortgage market should also help buyer affordability.
Looking over the longer term, I’m expecting demand for Barratt’s newbuilds to rise strongly, driven by population growth and chronic homes shortages. Barratt has a strong balance sheet too to invest in land to capitalise on this opportunity as well (net cash was £772m in June).
What next?
On balance then, my bullish outlook for Barratt and its peers remains intact. But will I be buying more of its shares for my portfolio? The answer is no, but that’s because of my already sizeable exposure to the UK housebuilding sector.
I also own Persimmon and Taylor Wimpey shares and have indirect exposure through my holdings in brick manufacturer Ibstock.
I think the Footsie company remains an attractive stock for new investors to consider. That said, the prospect of further near-term turbulence might not make it a suitable share for risk-averse share pickers.
The post Should I buy more Barratt shares after yesterday’s price collapse? appeared first on The Motley Fool UK.
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More reading
- Barratt Redrow share price plunges 9% on profits hit – time to consider buying?
- Could these FTSE 100 stocks explode in July?
- 2 UK stocks that could be under pressure if fiscal problems keep rising
- 2 FTSE 100 stocks I believe demand serious attention this July
Royston Wild has positions in Barratt Redrow, Ibstock Plc, Persimmon Plc, and Taylor Wimpey Plc. The Motley Fool UK has recommended Barratt Redrow and Ibstock Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
