Barratt Redrow
Current profitability understates the earnings power of the UK’s leading housebuilder.
A structurally undersupplied market, hidden barriers to entry, and accounting that misrepresents unit economics have left Britain’s largest homebuilder priced below the value of its tangible assets. We estimate intrinsic value of more than £12 per share.
- > £12
- Estimated intrinsic value per share
- c.360%
- Upside to intrinsic value
- 20+ yrs
- Phoenix invested in Barratt
vs tangible asset value
over current market value
through multiple cycles
Why Barratt Redrow is misvalued
UK housebuilders are widely misunderstood. Their accounts obscure the cash the business generates, and the market underrates the structural advantages of scale. We believe Barratt Redrow shares are materially undervalued. A brief overview follows; the full workings are in the deck below.
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Predictable demand
Housing demand is driven by household formation (population growth, ageing, coupling and migration), which is steady and forecastable.
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Constrained supply
The UK’s local planning system structurally limits new supply. In an undersupplied market, developers can keep selling through the cycle, so cash keeps coming, even in a downturn.
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A 50-year moat
No new entrant has joined the top 10 since 1974. Scale, the rising cost of regulation and access to land all favour the incumbents, and concentration has risen as small builders disappear.
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Pricing power, high returns
Scale makes the large builders the best bidders for land. The CMA found they earn mid-teens long-term returns, against around 8% for UK companies as a whole.
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Accounting understates value
Long gaps between buying land, building and selling mean reported profit diverges from cash generation, most of all after volumes fall and costs rise.
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A wide discount
On every measure the shares look cheap: a discount of roughly 40% to tangible net assets, and a deep discount to our estimate of intrinsic value.
Net cash and a land bank beyond current needs also leave the company well placed to return significant capital to shareholders.
Phoenix Asset Management Partners-managed funds are shareholders in Barratt Redrow and therefore stand to benefit if the share price rises. These are our opinions, not investment advice. Please read the important information.
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