Housebuilders show investors they are made of strong stuff

Trading updates from housebuilders Barratt Developments and Galliford Try and from building materials supplier Travis Perkins showed the housing market was far from wooden as they provided investors with their latest trading updates.
Barratt Developments

Barratt Developments (BDEV) boasted of a “strong start to 2012” with private sales rates up 11% and site numbers up by a similar amount. Total private sales have increased by 21.8% since the start of January. Underlying house prices “had remained stable”.

This follows a robust half-year trading period, with pre-tax profits coming in at £21.6 million, as completions and average selling prices (ASP) advanced by 6.7% and 3.1% respectively.

Net debt at period end stood at £542.2 million, with the company guiding the figure to be around £350 million at the year end – at the lower end of its previous guidance.

“The lowered net debt number pales into insignificance versus the estimated £800 million plus average net debt and £700 million land creditors,” voiced Alastair Stewart, analyst at Collins Stewart. Who has a ‘sell’ rating on the stock.

On the other hand, Panmure Gordon’s analyst Rachael Waring is more optimistic. “Although Barratt has enjoyed a fantastic share price performance already, up 40% since 1 January, we believe that there is further to go for as risks recede and confidence improves. We therefore maintain our Buy recommendation,” she said.

Galliford Try

Shares in Galliford Try (GFRD) jumped more than 10% as it announced an “enhanced dividend and a progressive dividend policy going forward”.

The announcement came as the company published its interim results, well ahead of expectations. The housebuilding division achieved 59% unit growth, with a 17% increase in private ASP.

According to Mark Hughes, analyst at Panmure Gordon, the stock is the cheapest in the sector, trading on a 2012 price to earnings ratio of 8.4 times, versus the sector on 12.5 times. Galliford also offers the highest dividend yield in the sector at 6%, versus the sector average of 1.7%. He thus has a ‘buy’ recommendation on the stock.

Finally, the company confirmed that it was enjoying strong current trade and commented that they “have been encouraged by the strength of the market in the first seven weeks of the year”.

Travis Perkins

However, slightly more cautionary statements were given by the management of Travis Perkins (TPK), who reiterated a tough outlook with the prospect of a “market softening” this year.

That said, “another year of solid progress” was likely due to self help initiatives, market share gains and enhanced BSS synergies.

For the full-year, pre-tax profits increased 37% to £296.7 million, slightly ahead of consensus. Dividend was increased by a third to 20p. Additionally, net debt at period end position came in at £583 million, slightly better than expected.

“With an attractive valuation and forecasts underpinned by the acquisition of BSS, we see further potential for good news from the shares,” commented Andy Brown, analyst at Panmure Gordon, who reiterated his ‘buy’ recommendation. “Management has a strong record on tight cost control, essential in the current climate and it continues to deliver best in class margins,” he added.

Seymour Pirerce also has a 'buy' recommendation on the stock. The broker said that the market share gains experienced by the company in 2011 would continue in 2012.

Shares in the company are currently trading on a 2012 price to earnings ratio of about 10 times.

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