Source: Investig Published 02/09/2024, 12:37
On Monday, UBS upgraded shares in Barratt Developments Plc. (BDEV: LN) (LSE: BTDPY), one of the UK’s leading housebuilders, to Buy from Neutral, with a revised price target to £6.30 from £6.10. The upgrade reflects the firm’s view that Barratt is currently one of the most undervalued stocks in its sector, trading at 1.1 times its price to tangible net asset value (P/TNAV), while the sector average is 1.3 times, with the sector average ranging between 1.25 and 1.55 times.
The analyst noted that following the acquisition of Redrow, which was completed on August 23, Barratt now has the ability to leverage its scale as the UK’s largest homebuilder. The company boasts a pipeline of around 18,000 homes and around £6 billion in pro forma revenues expected for the 2024 financial year.
Despite Barratt’s recent poor performance in profitability as a standalone entity, the analyst expects the benefits of integration and the rebuilding of the number of sites will provide opportunities for the company to improve its financial metrics in the coming years.
The new target price of 630p implies a total shareholder return of around 29% for Barratt Developments shares, indicating a positive outlook for investors based on the current valuation and future potential post-acquisition.
In other recent news, Barratt Developments has made significant strides in the housing market following its acquisition of Redrow. The deal, which resulted in the issuance of 473 million new Barratt shares, has valued Redrow at around £2.6 billion. Morgan Stanley has resumed coverage of Barratt Developments with an equal weight rating, reflecting the new business landscape post-acquisition.
These latest developments have positioned Barratt as the largest publicly listed housebuilder by total deliverables and revenues. Forecasts for the combined company in 2023 are for a 32% increase in the number of homes delivered and a 37% increase in revenues. Gross profit margins are expected to increase by a further 52%.
The acquisition is also expected to boost Barratt’s average selling price by 6%, to £331,000, due to the inclusion of the premium Redrow brand. Barratt’s operating margin is expected to improve from 12% to 14%, with further improvements expected once the synergies from the acquisition are realised.
Investment Insights
As Barratt Developments Plc. (OTC: BTDPY) looks to the post-acquisition landscape, real-time data from InvestingPro provides additional context for investors. With a market cap of $6.65 billion and a price-to-earnings (P/E) ratio of 22.65, the company appears to be maintaining a stable valuation. Notably, the adjusted P/E ratio for the past twelve months as of Q2 2024 is 14.18, suggesting a more favorable outlook for earnings when looking at the company’s recent performance.
InvestingPro’s advice highlights that Barratt Developments holds more cash than debt on its balance sheet and pays out a large dividend to shareholders, with a yield of 5.44% as of the latest data. These factors could be particularly attractive to income-focused investors and those looking for a degree of financial stability in their investments. On the other hand, analysts are forecasting a decline in sales in the current year, and gross profit margins have been identified as weak. Investors should consider these elements when assessing the company’s prospects.
Furthermore, the stock has seen a total price return of 20.67% over the past year, despite recent volatility. For those looking to do a deeper analysis, InvestingPro offers additional advice on Barratt Developments, providing a comprehensive look at the company’s financial health and market potential.
With an upcoming earnings date of September 4, 2024, and InvestingPro’s fair value estimate of $13.26, which is closely aligned with the previous closing price of $13.14, investors have timely and relevant data to inform their decisions.
