While the shares prices of many housebuilders are still well below where they were pre-pandemic, so are their earnings which means although the sector may look cheap at first glance it could be a classic ‘value trap’ instead.

In the case of Barratt Developments (BDEV), whose shares are still almost 50% below their March 2020 level and which has a trading update on 10 July, sales for the year to June 2024 are seen at just over £4.1 billion against 2019’s £4.76 billion while normalised EPS (earnings per share) are seen at 26.4p against 72.6p, which is why it has decided to take a short cut and ‘buy’ growth with the all-share acquisition of Redrow (RDW) for £2.5 billion.

Paying a 27% premium isn’t ideal, but the offer price of roughly 760p when the offer was made was still a small-ish discount to Redrow’s pre-pandemic price and Barratt is looking to generate ‘significant cost synergies from procurement savings and a rationalisation of divisional and central functions, which are expected to drive a combined lower cost’.

In theory a change of government should be good news, if the planning system can be unblocked so more homes can be built, but we fancy any change is likely to be slow and cumbersome and will sorely test investors’ patience.

Although everyone accepts the UK needs more new homes, lack of affordability is still a major issue and increasing the size of the company doesn’t automatically mean Barratt’s sales rate will improve – that depends on the availability of mortgages and how confident buyers feel, both of which are beyond the developers’ control.

UK UPDATES OVER THE NEXT 7 DAYS

FULL-YEAR RESULTS

9 July: Loungers, Begbies Traynor 

11 July: Jet2

TRADING UPDATES

8 July: Hunting

10 July: Barratt Developments 

11 July: Hays

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