Company Reports

Homebuyer demand has shown further improvement for no-moat Barratt Developments in early fiscal 2025. Its weekly private home sales rate rose to 0.58 home per active outlet, up 38% year on year. The progressive improvement in sale activity witnessed in 2024 and the recent spate of favorably trending housing market data speaks to our view that the UK housing market is in the midst of a cyclical revival. Barratt shares continue to screen attractively, with UK homebuyer appetite clearly rebounding from its housing cycle lows in 2023.

We make no change to our GBX 760 fair value estimate for no-moat Barratt Developments following news that its merger with smaller rival Redrow will take effect on Aug. 21, 2024. Barratt has elected to complete the deal ahead of formal clearance from the UK’s antitrust watchdog, the CMA, following the CMA’s assertions that the undertakings offered by Barratt and Redrow earlier this week are likely to remedy the anticompetitive concerns it raised as part of its investigation of the proposed merger. Antitrust clearance had previously been a condition precedent under the terms of the merger agreement.

We make no change to our GBX 760 fair value estimate for no-moat Barratt Developments following news that the UK’s antitrust watchdog—the Competition and Markets Authority—has all but approved its proposed tie-up with smaller rival Redrow. As we’d anticipated, the CMA investigation has concluded that the mooted merger will not have a material impact on competitive dynamics within the UK’s homebuilding sector. Indeed, the CMA identified just one out of the 400 local regions across the UK in which Barratt and Redrow operate where competition may be adversely affected.

No-moat Barratt Developments’ July 2024 trading update proved mixed, offering on one hand signs that homebuyer confidence continues in 2024 to rebound from its 2023 cyclical low point. On the other, Barratt delivered soft fiscal 2025 guidance that underwhelmed investors. Pleasingly, Barratt’s weekly private home sale rate increased to 0.69 sales per active outlet in the second half of fiscal 2024, up 24% sequentially on a seasonally adjusted basis. Furthermore, Barratt’s private home sales rate firmed as the second half of fiscal 2024 progressed, underscoring the improving conditions in the UK housing market and according with recent improvement in observed housing market datapoints.

Barratt Developments is the UK’s largest homebuilder in terms of both revenue and dwelling completions. It aims to distinguish itself from UK peers with a sharp focus on build quality. While falling short of delivering durable pricing power, the strategy has been highly effective in bolstering the reputation of Barratt’s three brands—Barratt Homes, David Wilson, and Barratt London—which consistently garner more awards than peer UK homebuilders for build quality and customer satisfaction from the UK’s National House-Building Council.

We reiterate the still-significant stock price upside potential for the majority of our UK homebuilder coverage despite the positive homebuilder stock price reaction to a Labour Party victory in the UK general election. Indeed, the election result was widely anticipated given polling in the lead up to the UK general election, which predicted a landslide Labour victory. Nonetheless, the election outcome has emboldened investors, with UK homebuilder stocks leading gains in UK stocks in early trading following the election result on July 5, 2024. Ostensibly, the Labour victory has instilled greater investor confidence that the present urban planning bottlenecks to new housing supply will be appropriately addressed—a key near-term concern that has weighed on UK homebuilder stock prices. Labour’s plans to reinstate support for first homebuyers and to increase supply of other forms of affordable housing are also constructive to the homebuilder industry outlook.

No-moat Barratt Developments' shares screen appealingly as the plan to merge with smaller rival Redrow progresses toward completion. Barratt and Redrow shareholders have voted to approve the merger deal, which was announced in early February. Antitrust clearance is the key remaining hurdle to deal closure, with the Competition and Markets Authority—UK’s antitrust watchdog—recently announcing a formal investigation of whether competition in the sector would be substantially reduced if the deal proceeds. The mooted merger is set to create a clear industry leader, which will command an estimated 10% share of the UK homebuilding market. Still, we expect the CMA will allow the deal to proceed, given the otherwise fragmented nature of the UK homebuilding market. A time value of money adjustment leads us to raise our fair value estimate by 3% to GBX 760 per share.

Barratt Developments is the UK’s largest homebuilder in terms of both revenue and dwelling completions. It aims to distinguish itself from UK peers with a sharp focus on build quality. While falling short of delivering durable pricing power, the strategy has been highly effective in bolstering the reputation of Barratt’s three brands—Barratt Homes, David Wilson, and Barratt London—which consistently garner more awards than peer UK homebuilders for build quality and customer satisfaction from the UK’s National House-Building Council.

Barratt Developments is the U.K.’s largest homebuilder in terms of both revenue and dwelling completions. Barratt aims to distinguish itself from U.K. peers with a sharp focus on build quality. While falling short of delivering durable pricing power, the strategy has been highly effective in bolstering the reputation of Barratt’s three brands—Barratt Homes, David Wilson Homes, and Barratt London—which consistently garner more awards than peer U.K. homebuilders for build quality and customer satisfaction from the U.K.’s National House-Building Council.

We lift our fair value estimate for no-moat Barratt Developments by 6% to GBX 740 following the announcement of its proposed merger with peer U.K. homebuilder Redrow. The mooted deal—the announcement of which overshadowed Barratt Developments’ first-half fiscal 2024 result—promises to deliver a clear leader in the U.K. homebuilding industry, with an estimated market share of around 10% based on home completion volumes. The deal offers strategic cogency and cost synergy benefits. Consequently, we fully expect the deal to ultimately proceed, despite being subject to approvals from Barratt and Redrow shareholders, as well as U.K. antitrust regulatory clearance. With shareholder voting likely to proceed in May 2024, the deal is expected to be completed in the second half of 2024 (calendar year). Barratt’s stock price dropped 5% in response to the merger announcement, with investors ostensibly concerned that synergy capture may ultimately prove more elusive than management’s expectations under the deal. We think investors’ concerns surrounding synergy realization are overblown and view Barratt shares as attractive, trading at a 32% discount to our revised fair value estimate.

Barratt Developments is the U.K.’s largest homebuilder in terms of both revenue and dwelling completions. Barratt aims to distinguish itself from U.K. peers with a sharp focus on build quality. While falling short of delivering durable pricing power, the strategy has been highly effective in bolstering the reputation of Barratt’s three brands—Barratt Homes, David Wilson Homes, and Barratt London—which consistently garner more awards than peer U.K. homebuilders for build quality and customer satisfaction from the U.K.’s National House-Building Council.

No-moat Barratt Developments' shares remain appealing, offering attractive upside of around 22% relative to our unchanged fair value estimate of GBX 700. We think recent U.K. interest-rate dynamics and the late 2023 improvement in sales activity recently disclosed by its homebuilder peers no-moat Persimmon and no-moat Taylor Wimpey bode well for Barratt Development’s earnings outlook throughout the remainder of fiscal 2024 and onward. With U.K. housing market conditions retracing their cyclical nadir in 2023, we continue to expect Barratt’s earnings to bottom cyclically in fiscal 2024. We forecast Barratt to deliver 13,215 homes and a pretax profit of GBP 325 million in fiscal 2024, with earnings to progressively improve thereafter.

Barratt Developments’ fiscal 2023 delivery of 17,206 home completions and full-year pretax profit of GBP 884.3 million tracked our expectations and offered investors little surprise, given that the result had been effectively announced in conjunction with the U.K. homebuilder’s mid-July trading update. Barratt offered sparse incremental detail on its near-term outlook but reiterated the cyclical woes it faces in fiscal 2024. Conditions in the U.K. housing market remain downbeat, with U.K. mortgage interest rates having spiked once more in recent months, responding to a U.K. inflation rate that has proved more stubborn than in many other developed economies. Homebuyer demand remains consequently soft, with Barratt reiterating its cautious outlook for fiscal 2024 sales volume in the range of 13,250-14,250 home completions, representing a 20% year-on-year decline.

Barratt Developments is the U.K.’s largest homebuilder in terms of both revenue and dwelling completions. Barratt aims to distinguish itself from U.K. peers with a sharp focus on build quality. While falling short of delivering durable pricing power, the strategy has been highly effective in bolstering the reputation of Barratt’s three brands—Barratt Homes, David Wilson Homes, and Barratt London—which consistently garner more awards than peer U.K. homebuilders for build quality and customer satisfaction from the U.K.’s National House-Building Council.

Barratt Developments’ July 2023 trading update offered us little surprise, with the no-moat homebuilder effectively issuing its full-year fiscal 2023 result. Barratt expects to deliver full-year fiscal 2023 pretax profit of GBP 881 million when it reports on Sept. 6, in line with our full-year forecast.

The U.K. homebuilders continue to screen attractively despite a fresh look at a number of our key U.K. housing market assumptions and consequent revisions to our financial estimates for most of our U.K. homebuilder coverage. Undoubtedly, U.K. homebuilders are staring down a difficult 2023 where profit margins are coming under considerable pressure from a combination of soaring build cost inflation and the effects of a housing market, which has entered a period of cyclical decline—causing home completion volumes to sharply contract and placing pressure on house prices.

Barratt Developments is the U.K.’s largest homebuilder in terms of both revenue and dwelling completions. Barratt aims to distinguish itself from U.K. peers with a sharp focus on build quality. While falling short of delivering durable pricing power, the strategy has been highly effective in bolstering the reputation of Barratt’s three brands—Barratt Homes, David Wilson Homes, and Barratt London—which consistently garner more awards than peer U.K. homebuilders for build quality and customer satisfaction from the U.K.’s National House-Building Council.

Barratt Developments’ May 2023 trading update offered investors further evidence that U.K. homebuyer confidence is progressively recovering in 2023. Barratt’s calendar 2023 year-to-date weekly private sales rate rose to 0.65 homes per sales outlet, implying a solid improvement in recent months that tracks in line with peer performance and represents an approximate doubling of sales activity relative to the final quarter of 2022, when forward orders crashed as U.K. mortgage interest rates jumped. Barratt’s share price has retraced substantial lost ground in recent months, rallying 21% in 2023 year to date. Still, shares in the no-moat stock remain compelling, trading at a 29% discount to our unchanged GBX 710 fair value estimate.

Barratt Developments is the U.K.’s largest homebuilder in terms of both revenue and dwelling completions. Barratt aims to distinguish itself from U.K. peers with a sharp focus on build quality. While falling short of delivering durable pricing power, the strategy has been highly effective in bolstering the reputation of Barratt’s three brands—Barratt Homes, David Wilson Homes, and Barratt London—which consistently garner more awards than peer U.K. homebuilders for build quality and customer satisfaction from the U.K.’s National House-Building Council.

The soured near-term outlook for U.K. house prices remains a distinct challenge to profit margins in fiscal 2023 for no-moat Barratt Developments. Barratt’s first-half fiscal 2023 result provided little surprise, with key details of its first-half performance having been previously provided to the market at its mid-January trading update. Still, Barratt weighed in on the outlook for the remainder of fiscal 2023, confirming our expectations for challenging trading conditions in the second half of fiscal 2023 as the U.K. housing market adjusts to the recent surge in mortgage interest rates.