Redrow lurches from profit to £50m loss as sector struggles

Published on Saturday 5 September 2009 13:46

NATIONAL housebuilder Redrow is expected to have plunged more than £50 million into the red last year, as the sector continues to struggle under the recession and mortgage drought.

That is a sharp turnaround from the 65.5m profit the group, which has operations in Scotland, made in the previous year.

Redrow is believed to be virtually certain to announce further hefty land write-downs when it reports its annual results on Thursday. There is strong City speculation that a rights issue is on the cards at some stage.

Andrew Gardner at MF Global said: "We pretty much expect further land write-downs at Redrow of about 25m on top of the 25m already made. And we also think there is potential for a rights issue of up to about 100m or so.

"But even though these things may have been widely expected, they may not read well initially, not look very pretty, and could lead to some pressure on the share price."

Some Redrow followers have drawn comfort from the fact that company co-founder Steve Morgan returned on board as executive chairman earlier this year. "He knows the industry inside out," one analyst said.

Gardner has forecast an underlying pre-tax loss at Redrow of 52m, slightly below a City consensus for a loss of 53.4m.

The City's consensus is for a loss per share of 22.5 pence against earnings per share of 28.8p last time.

Gardner said Redrow had under-performed operationally in recent times partly due to buying land at the top of the market in 2006. It has also been criticised for having had too many house types which did not maximise value and confused its proposition.

However, he added: "Steve Morgan is back there now, and it seems he has grasped that problem, believing there does not need to be 100 or so different house types, perhaps just 30 instead."

It is thought Morgan will try to persuade the City that the bulk of the necessary restructuring of the group has been done and that, even though the company was in the red, the worst was past and it was repositioning itself to benefit from the nascent sector upturn.