FTSE 250 movers: Housebuilders in focus after Barratt/Redrow takeover deal

(Sharecast News) - FTSE 250 (MCX) 19,164.02 -0.04%

Market Movers

Britain's biggest housebuilder Barratt said it had agreed an all-share takeover of smaller rival Redrow valuing the latter at £2.5bn.

Barratt will control the merged group - to be renamed Barratt Redrow - with a 67.2% stake and Redrow shareholders keeping the remaining 32.8%.

Redrow investors will receive 1.44 new Barratt shares for their own stock. The terms also imply a premium of 27.2% to the closing price per Redrow Share of 600p on February 6.

Barratt said the takeover could realise pre-tax cost synergies of at least £90m on an annual run-rate basis by the end of the third year after completion, with around 90% delivered by the end of the second year, although there was no mention of projected job losses.

The combined group will have a turnover of more than £7bn, and a pipeline of 92,300 homes. Barratt chair Caroline Silver will head up the combined board. Current Redrow chief executive, Matthew Pratt, will stay as chief executive officer of Redrow exclusively.

Both companies also released half-year results alongside the takeover announcement. Barratt slashed its dividend as pre-tax profits plunged 81% to £95.2m amid the surge in borrowing costs last year that hammered demand for homes. The interim dividend was cut by 57% to 4.4p a share.

Forward sales at the end of January fell to 8,760 homes from 10,854 a year earlier at a value of £2.26bn, down from £2.66bn in 2023.

Redrow told a similar tale, with profits more than halved to £84m from £198m a year ago. The dividend was halved to 5p a share.

MARKETS IMPROVING?

"In recent weeks the housing market has shown signs of improvement, with increasing mortgage approvals and reduced mortgage rates with greater competition amongst lenders. This in turn has improved homebuyer confidence and raised the prospects of a return to a more stable sales market," said chief executive Matthew Pratt.

AJ Bell investment director Russ Mould noted that the merged business will be financially robust with more than £800m of net cash on the balance sheet which "should underpin generous dividends".

"The deal has logic for Barratt as Redrow has consistently traded at a discount to much of the sector and is well diversified across different parts of the UK - apart from the London market which it exited a few years ago. It also doesn't seem to have major skeletons in the cupboard around build quality or corporate governance like some of its peer group," he said.

"Redrow's management is fairly well regarded so it may raise some eyebrows that the board of the combined entity is set to be almost entirely dominated by Barratt directors."

"The fact Redrow founder Steve Morgan is on board with the deal is significant although whether an increasingly interventionist Competition and Markets Authority will want to look at the deal, given Barratt is already among the country's highest volume housebuilders, is open to question.

"Putting the emphasis on how this deal can help deliver the homes the country needs could be seen as an attempt to win over the regulator and politicians."

The news also lifted shares in sector peers Crest Nicholson and Bellway.

PZ Cussons, the consumer products group behind brands like Carex and Imperial Leather, delivered a profit warning to shareholders on Wednesday and cut its interim dividend by nearly a half as a result of a significant slide in the Nigerian naira in the first half.

The naira is currently 70% weaker than it was a year ago, the biggest drop in the currency's history, PZ Cussons chief executive Jonathan Myers said in a statement, plummeting 30% since the end of PZ Cussons' first half on 2 December.

"As we set out in September 2023, macroeconomic developments in Nigeria would be the key determinant of the FY24 results. Whilst we continue to make good progress in managing this volatility, the further devaluation in recent weeks will inevitably impact our FY24 results," he said.

The company is now forecasting full-year adjusted operating profit at reported rates of exchange to be in the range of £55-60m for the 12 months to 31 May 2024, compared with consensus forecasts of around of £61.5-68.2m as of September. That's down from £73.3m the previous year.

Revenues in the first half slumped 17.8% or £59.8m to £277.1m, with £52.9m of that decline related solely to the devaluation of the naira. Like-for-like revenues, however, grew 2.2%.

The company has taken actions to increase prices "significantly" in Nigeria in response to the devaluation of the naira and corresponding increase in input costs, as well as increase the number of stores served.

PZ Cussons took an operating loss of £89.7m for the half, compared with a profit of £39.2m previously; but if currencies were constant it would have reported an operating profit of £30.6m, down just 7.8% on the year before.

Myers said the company was taking the "prudent step" to cut its dividend in light of the results, with half-year payout falling to just 1.5p per share, down from 2.67p previously.

Media business Future said on Wednesday that year-to-date trading had been "broadly in line with expectations", despite seeing a slowdown in digital advertising revenues and pressure from FX swings.

Future said its price comparison unit had been strong in the four months ended January, with good growth in its business-to-business unit, offsetting a softer performance for affiliate products and digital advertising, which it laid at the feet of "continued macroeconomic pressures and low visibility".

The London-listed group also noted that its magazines division had remained "resilient" throughout the period, with its 'Hero brands' outperforming the wider portfolio.

FTSE 250 - Risers

Redrow (RDW) 685.50p 14.25% Crest Nicholson Holdings (CRST) 218.20p 4.40% Grainger (GRI) 268.80p 2.99% Virgin Money UK (VMUK) 157.15p 2.81% Bellway (BWY) 2,826.00p 2.61% Hilton Food Group (HFG) 807.00p 2.54% Darktrace (DARK) 352.00p 2.30% Balanced Commercial Property Trust Limited (BCPT) 78.50p 1.95% Tyman (TYMN) 292.50p 1.92% Baltic Classifieds Group (BCG) 240.50p 1.91%

FTSE 250 - Fallers

PZ Cussons (PZC) 106.00p -17.19% Future (FUTR) 665.50p -7.31% Babcock International Group (BAB) 445.60p -4.34% Close Brothers Group (CBG) 482.40p -3.29% Redde Northgate (REDD) 342.00p -3.25% FirstGroup (FGP) 162.40p -3.16% Carnival (CCL) 1,125.00p -2.77% PureTech Health (PRTC) 190.20p -2.56% Tullow Oil (TLW) 29.70p -2.24% Bank of Georgia Group (BGEO) 3,715.00p -2.24%