Housebuilder sees profits slump despite property market recovery » Housing » 24dash.com

Housebuilder Redrow was today poised to take advantage of a recovering property market after riding out a weak 18 months which hit profits by 13%.

The company endured a difficult year-and-a-half to December as it stomached a reduction in property prices and weaker demand but said it saw a pick up in sales since spring.

The recovery led to a 12% rise in turnover in the second half of the financial year to June 30 as the property market sparked back into life.

But it was not enough to stop the Flintshire-based firm posting a fall in full year pre-tax profits from £139 million to £120.5 million.

Redrow chairman Robert Jones said: "In the spring we witnessed a recovery in the housing market following 18 months of weaker demand.

"We are mindful that recent increases in unemployment levels and interest rates could affect customer confidence, but sales in the early weeks of the new financial year are encouraging."

The recovery of the UK housing market in 2006 was further underlined by Redrow rival Oakdene Homes, which today reported a 165% boost in pre-tax profits to £2.1 million in the six months to June 30.

It followed a positive set of results from Bovis Homes yesterday, which said last month's interest rate rise had failed to dent the market.

Redrow said turnover dropped from £780.4 million to £770.1 million during the period - despite an 8% increase in completions to 4,735.

The firm was hit by a reduction in average selling price to £161,700, down from £172,000 during the previous year because of lower prices at city developments.

However, the firm laid the foundations for a more positive result next time and said its landbank had grown by 20% and now included 21,000 plots, which are being developed or waiting for work to start.

Redrow also said it was on track to build 2,000 debut properties - its new low-cost home - each year by 2010 and said it was confident about the outlook for 2007.

Chief executive Neil Fitzsimmons said: "This year was likely to be a difficult year - up to December the market was quite subdued and there was low consumer confidence.

"But things have picked up and there is life coming back into the market with mortgage approvals up."

Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers, said: "Redrow remains in a transitional period, increasing its output of lower cost homes while continuing to develop its mixed use and regeneration activities.

"The difficulty for investors is that both are likely to yield returns over the medium to longer term and some patience will be required in the shorter term as profit margins continue to suffer.

"Overall, Redrow continues to move in the right direction, with an emphasis on the struggling first time buyer which could eventually leave the group positioned ahead of many of its rivals.

"Furthermore, industry consolidation hopes remain firmly in investors' thoughts and Redrow continues to be a prime potential takeover candidate - market consensus opinion remains resolutely positive."

Copyright Press Association 2006.