Redrow PLC pulling back from London as coronavirus changes homebuyer

() said profits will be “substantially below” last year’s because of the effects of coronavirus and a scaling back of its operations in London.

With recent research indicating the coronavirus pandemic is changing house-buyers’ priorities towards more inside and outside space, wanting to live closer to green spaces and having better home workspace, the builder said it has decided to scale-back focus on the capital and would “target the group’s future growth on the higher returning regional businesses” and its Heritage home designs.

This shift, which will see construction focus solely on the Colindale development in north-west London and existing sites under construction but not begin work on sites which were recently acquired, will result in financial provisions being made that will hit profit for 2020. Analysts expected this to be between £25mln and £30mln.

It also came on the same day that the Prime Minister announced a major loosening of planning laws to build more homes and said that the government would “build, build, build” its way out of the coronavirus crisis.

However, the FTSE 250 group said house sales have been strong in the five weeks since re-opening its sales offices in May, especially from buyers using the Government’s Help to Buy scheme.

The net sales rate per outlet per week of 0.56 was only slightly lower than the 0.59 seen in 2019, which the housebuilder said reflected “strong pent-up demand”.

The company did not say anything about average selling prices and whether there has been a sharp hit from the coronavirus and the onrushing economic recession hitting the country. 

The FTSE 250 group ended its financial year on June 28 with £126mln of debt, versus £124mln cash a year ago, but has increased its bank overdraft to £350mln and obtained eligibility under the government’s coronavirus corporate financing facility, though it does not now think it will need to use it.

Some 4,032 homes were completed in the past 52 weeks, down 37% from the previous year, meaning revenue is expected to fall 36% to £1.34bn.

Construction is taking place at 124 developments and there are 113 sales offices currently open, the group said, with the order book standing at a record £1.42bn, of which more than two thirds in terms of revenue is contracted. 

Pointing to the resilience of its cash flow, the board has decided not to use the government’s Job Retention Scheme and said it is “in the process of returning all payments received”.

Market reaction

The shares were down 7% to 431p by mid-afternoon on Tuesday.

Analysts at UBS said the strategic decision to scale back its London operations means sales from London will over time fall from the £300mln forecast in the 2021 financial year to £150-200mln by 2024.

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