The share price of Barratt Redrow (LSE: BTRW) has surged practically 10% in early buying and selling this morning (12 February) after an upbeat set of half-year outcomes. 

The FTSE 100 housebuilder raised full-year earnings steering to the higher finish of expectations and reported a 23% rise in interim pre-tax revenue to £117.2m. It additionally thrilled traders with a £100m share buyback. Is it now a purchase?

It’s been a tricky few years for UK housebuilders. Financial uncertainty and sticky rates of interest have squeezed purchaser demand, whereas affordability issues aren’t going away. 

Can this underperformer struggle again?

Mortgage charges have edging up currently, which wasn’t anticipated. Though there are indicators they’re sliding after the Financial institution of England reduce base charges to 4.5% on 6 February. 

At present’s replace suggests brighter instances forward. CEO David Thomas mentioned the stabilising financial, political and lending surroundings has revived buyer demand. Reservation exercise has been sturdy since January, signalling renewed confidence.

Thomas mentioned the “significant shortage of homes in the UK” ought to assist costs and demand, regardless of the unsure financial outlook.

Barratt’s integration of Redrow is progressing properly, apparently. with the mixed entity anticipating to ship round 22,000 properties yearly within the medium time period. The group’s working margins are forecast to get better to fifteen%, whereas it’s focusing on a 20% return on capital employed.

Ahead gross sales are nonetheless falling although. They stood at 10,903 properties on 2 February, down from 11,460 a yr in the past. Regardless of that, the whole ahead gross sales worth has jumped from £3.13bn in 2024 to £3.35bn. Costs stay resilient, even when they aren’t bombing alongside as they was once.

The Barratt Redrow share price continues to be down 10% over 12 months and a staggering 47% over 5 years. Inflation and the cost-of-living disaster did a lot of the injury.

Regardless of that poor exhibiting, they’re not precisely low cost, with a price-to-earnings (P/E) ratio of simply over 15, in step with the FTSE 100 common. The trailing dividend yield is a modest 3.4%.

A so-so valuation and dividend yield

Whereas at present’s rally is encouraging, shopping for the shares now might be dangerous as revenue takers emerge. Actually, the price is retreating as I write this (up simply over 6% somewhat earlier than 10am).

Lengthy-term traders will see a possibility in the event that they consider the housing market will proceed to get better. The UK nonetheless has a continual housing scarcity and that’s not going to vary. The inhabitants retains rising, whereas Labour’s housebuilding plans appear difficult, given the scarcity of expert staff.

A lot will depend on the Financial institution of England. A extra aggressive interest-rate-cutting cycle would pace issues up, however that’s not assured. Whereas the UK financial system may have decrease borrowing prices, the booming US might not.

Barratt has delivered a powerful replace, and the market has responded positively. However with financial uncertainty lingering and affordability a problem, a lot of at present’s excellent news seems to be mirrored within the share price.

For traders prepared to take a long-term view, Barratt’s sturdy fundamentals might make it a compelling purchase to think about. However they may wish to curb their enthusiasm. We’ve received an extended approach to go.