Housebuilder Barratt Redrow has revealed plans to return £400m to shareholders in the new financial year after coming under pressure from a major shareholder.
The housebuilder has unveiled a £386m share buyback programme, and will pay a 1p-per-share dividend, worth the remaining £14m, in financial year 2027, to take advantage of the ‘material discount’ to its tangible net asset value.
The programme comes alongside the group’s full-year trading update to 28 June, in which it reiterated its pre-tax profit guidance of £559.5m, a rise of 14.6%, with a high of £576m and a low of £537m, up on the previous year’s £488.3m.
Last week, Phoenix Asset Management Partners, one of Barratt Redrow’s largest investors and shareholders, published a 430-page analysis outlining why it believed the housebuilder should return as much as £1bn a year via share buybacks to create long-term value for shareholders.
Gary Channon, chief investment officer and founder of Phoenix, welcomed the launch of the programme. “The board’s decision to return capital through buybacks, while the shares trade so far below their worth, is a step forward for shareholders,” he said.
“Every share bought back creates lasting value for those who remain. We remain of the view that the quantum should be based upon cash generation and not constrained by accounting earnings.”
The share buyback programme enables the purchase of ordinary shares of 10p each for up to a maximum consideration of £386m, with another £14m being returned as an ordinary dividend. The programme will commence immediately and will end by 2 July 2027.
Meanwhile, the trading update also reveals Barratt Redrow completed 17,667 homes, up from the 16,826 homes during the same period a year before.
The group also ends the year with net cash standing at £772m, around the same level as the £772.6m a year before.
However, the group only approved the acquisition of 3,029 plots during the year, significantly down on the previous year’s 22,530. The group said this was due to the cancellation of 4,121 plots across 17 sites in the second half of the year as well as its “increasingly selective approach to land acquisition”.
Chief executive David Thomas said the group “delivered a solid performance in a challenging market”, which reflects the “quality of our homes, the strength of our three complementary brands and the operational excellence of our teams”.
“The sector continues to navigate macroeconomic and geopolitical uncertainty, alongside industry headwinds and subdued customer demand, which have weighed on market sentiment,” he added.
“However, this means that given our performance and resulting balance sheet strength, deploying capital through an expanded share buyback programme is currently the most effective way to create long-term shareholder value, and we intend to return £400m to shareholders in FY27, primarily through share buybacks.”
Duncan Ferris, investment writer at Freetrade, said: “It must be said that operational performance looks solid. Total home completions reached the upper end of guidance, and cost management efforts will take some of the heat off margins. The impact of Redrow’s integration was stronger than anticipated too, with the combined business really starting to synergise.
“But the sales environment remains fraught. Barratt’s order book is weaker than last year, while incentives remain elevated and the use of part exchange as a sales tool has increased. That suggests buyers continue to face considerable affordability pressure.
“The business will hope its newly announced share buyback programme calms investors. It comes after recent pressure from shareholders to combat its valuation slump. But the £386m buyback scheme has come at the expense of ordinary dividends. Hoovering up its heavily discounted shares makes sense from a capital allocation perspective, but it may test the patience of income investors.”
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