RBC Capital downgrades Redrow to 'sector perform'
By Michele Maatouk
Date: Thursday 21 Mar 2024
(Sharecast News) - RBC Capital Markets downgraded Redrow on Thursday to 'sector perform' from 'outperform' following a period of outperformance and the fact the share price is now linked to that of Barratt Developments.
The bank, which left its price target unchanged at 750p, said that when Barratt made its play for Redrow at 1.23x P/B it did not believe the offer reflected the true value of Redrow's business.
"At the time we noted that for more than 70% of its listed life Redrow had traded at a higher valuation than the offer made by Barratt," it said.
"Six weeks on and no other bidder has thrown their hat in the ring. It seems to us therefore that Redrow's share price is, for now, linked to that of Barratt's."
RBC pointed out that Barratt's shares have underperformed the sector since the announcement of the proposed takeover.
"This surprises us as we view Barratt's plan to buy Redrow as a very good one and the price more attractive to Barratt's shareholders than Redrow's," it said. "Barratt offers a liquid way to play the UK housing market, but so do Persimmon and Taylor Wimpey, but without the distortion/disturbance of a major acquisition."
RBC said the deal is likely to complete.
"Whilst our analysis and comparison of Barratt's and Redrow's competitive positioning...is not as detailed as that being completed by the Competition and Markets Authority, we do not see any significant reasons for the transaction to be prevented, there is limited overlap of sites, and therefore the impact on consumer choice in local housing markets will not be material in our view."
The CMA announced last week that it was taking an initial look into Barratt's £2.52bn takeover of Redrow.
The regulator said it was seeking initial views on how the deal could impact competition in the UK. Its invitation to comment closes on April 2 after which it will decide whether to launch a full investigation.
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