Recapping The Week For Housebuilders

It’s been an eventful few days for UK house builders, with numerous earnings announcements over the last week coinciding with speculation about the future of the Government’s flagship ‘Help to Buy’ subsidy scheme. As a result, we’ve seen daily returns and sentiment levels in the sector fluctuate more than usual over the course of the week. This week’s chart shows abnormal tipster and broker sentiment levels (above/below the 6-week average) towards a portfolio of eleven house builders over the last few days. It also shows returns for the same companies over the same period.

The biggest movement in sentiment occurred on 3rd September, which coincided with Shore Capital reiterating its ‘Hold’ stance towards Redrow (RDW) and Barratt Developments (BDEV), and a ‘Sell’ stance on Bovis Homes (BVS). Redrow then went on to announce a 21% rise in pre-tax profits on the year to June, while company chairman Steve Morgan also bringing the Help to Buy scheme to the fore once more by calling for clarity on the future of the scheme. Nearly 40% of Redrow’s private reservations were supported by Help to Buy in the year to June. While Redrow’s positive results resulted in a recovery of tipster and broker sentiment in the sentiment (mainly driven by brokers rating the company as a buy), the share prices of other largebuilders such as Persimmon (PSN) took a hit, bringing the index value down for the day.

Housebuilders: Share Price v Abnormal Sentiment Levels

Both sentiment and share prices recovered considerably on Wednesday. Barratt Developments (BDEV) reported a 9.2% increase in pre-tax profits the following day (5th) as the Home Builders Federation announced ‘Help to Buy’ to be a “mitigated success”. A report by the federation showed that the number of homes built annually increased by 74% since it was introduced in 2013. Similar to Redrow, over 40% of Barratt’s sales were supported by Help to Buy. Berkeley Group Holdings (BGH) shot out a gloomier outlook on property development in London though, reporting that the market had stalled amid a lack of urgency. Buy ratings towards both companies by broker Peel Hunt contributed to more positive sentiment in the sector. Meanwhile, commentators such as Ben Marlow in the Telegraph criticised Help to Buy as being “help for house builders”.

Bovis Homes and McCarthy & Stone (MCS) capped off the flurry of earnings announcements, as Bovis’ interim showed a 41% increase in profits. McCarthy and stone, on the other hand, reported that 2018 would be a ‘tough year’. Operating profits for the year ending August are likely to be at least 24% lower than the previous year. As a retirement housebuilder, the firm does not benefit from the Help to Buy scheme like its peers. Elsewhere, tipster Rupert Hargreaves was bullish on Galliford Try (GFRD), seeing potential for a re-rate as confidence returns, and citing both the company’s dividend yield of 7.1% and forward P/E ratio of 7.1. Both sentiment levels and the index value of eleven housebuilders finished higher towards the end of play on Thursday.

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Disclaimer: The contents of this article should not be considered financial advice. Data accurate as of 6th September 2018.