Steve Morgan, the founder and chairman of Redrow, took a decision when he returned to run the company five years ago: he would plough every spare penny back into the business, buying land at post-crash prices and expanding as quickly as possible.
This strategy is still in place. The company is expanding in the London market, despite some concerns elsewhere, having entered it relatively late. It means that Redrow can be distinguished from other housebuilders, such as Berkeley Group and Persimmon, which have chosen to hand back to investors billions of the bounty gained from the housing boom of the past two years.
Instead, yesterday’s final dividend, doubled to 2p, suggests a yield on the shares of little more than 1.1 per cent for the year.
Horses for courses, then. Investors can take their pick. Redrow’s full-year figures bear evidence of that further growth, but they could hardly do otherwise. The key performance indicators are as startling as we have come to expect from the sector. Completions were up by 27 per cent to 3,597, while the average selling price gained 18 per cent, although much of this is that increased emphasis on the southeast.
Revenues were up by 43 per cent, although if you again strip out the London effect, this is nearer 25 per cent. Pre-tax profits came in 91 per cent higher at £132.6 million. Margins are above 20 per cent as the company builds on land bought since the downturn. Redrow spent £160 million to £170 million topping up its land bank. Completions will go up by low double figures this year.
The company is confident enough on prospects for the southeast, even if this market does overheat, because it is selling to ordinary commuting Londoners rather than investors and oligarchs.
Demand in the spring was so strong that some sites ran short of available houses. With the market rather more stable, growth from now will come from adding to that number of sites rather than squeezing out more sales per outlet.
The shares, off 2¾p at 278¼p, sell on eight times this year’s profits. Investors are faced with a clear choice. If they want income, look elsewhere in the sector. I suspect there is more capital growth to come from Redrow in due course, though.
£865m revenue
2p dividend
MY ADVICE Buy for growth
WHY Redrow’s strategy is based upon expanding quickly rather than returning cash to shareholders, but the prospects for growth are there
The gold price is an oddity. One might expect, given all the awful things going on in the world and its traditional role as a safe haven, that it might respond with a rise, but, after its abrupt decline during 2013, the price has not done much during this turbulent summer.
In May, Polymetal International decided to buy the Kyzyl project in northeastern Kazakhstan for about $620 million, plus additional payments over the next seven years. The full details on the project are not known yet; it will involve the spending of $440 million to $640 million to bring it online by 2018. The cost of production thereafter is not known, but it should be well below the $750 to $800 an ounce that Polymetal’s much smaller Svetloye project, which is being developed, will give. No surprise, then, that the company, whose share register is dominated by three investors, is hauling back on capital spending elsewhere.
Polymetal is a tricky one to value, because the main reason to hold the shares is the dividend yield. The policy is to pay out 30 per cent of net income to shareholders. The fall in the gold and silver price last year meant that the total payment dropped from 81 centsfor 2012 to nine cents; an interim payment of eight cents is about to be made.
No one is putting any numbers on the size of this year’s dividend, but, if the price of gold stays the same, it will be higher than at the halfway stage. This suggests a yield on the shares, off 4p at 534½p, of a little more than 2 per cent. Not a lot to go for, though the shares are a good proxy for any rise in the gold price.
First production from Kyzyl 2018
MY ADVICE Hold
WHY Income uncertain; will gain from any gold price rise
We all take for granted that, when we check out of a hotel, someone has to clean up the towels we throw into the bath. Somebody like Johnson Service.
This is one of those businesses that should benefit from economies of scale and migration to the large operators, yet it remains highly fragmented, with only two significant operators, Berendsen and the smaller Johnson, since a third, Initial, exited the market.
Johnson bought Bourne Services in March, which added half as much again to revenues from hotel laundry, raising some cash at 51p a share at the same time. Debt is still at an acceptable level and the company has a new banking facility to fund further acquisitions.
The purchase helped halfway adjusted pre-tax profits to a 55 per cent rise to £8.5 million. Johnson is trying to build up the dividend again; a 25 per cent rise to ½p suggests a yield for the shares, up 2¼p at 62½p, of about 2.4 per cent.
The dry cleaning side, which includes the upmarket Jeeves of Belgravia brand, is struggling in a challenging market. Johnson shares, which rose sharply after the Bourne purchase, sell on 12 times earnings, which suggests no immediate upside.
£102m revenue
½p dividend
MY ADVICE Hold
WHY Shares look fully valued for now
And finally . . .
Shares in GKN, a business that this column has championed, have not shared in the small rally among industrials and engineering stocks over the past month, a note from Espiritu Santo points out. This seems to be the result of concerns over Russia and China, but these look overdone. Currency headwinds, the main concern of late, have moderated, as I keep pointing out. GKN trades on a 27 per cent discount to UK industrials, which looks too great, given that prospects for growth are better than most of its peers.