Barratt Redrow (LSE: BTRW) – buying £1 of tangible assets for ~65p?
I’ve been looking at UK housebuilders as value investments, and Barratt Redrow looks particularly interesting at around 279p.
The obvious bull case is UK planning reform, political support for housebuilding and eventually lower mortgage rates. But these tailwinds could take years to translate into earnings, so I’m more interested in whether the shares are cheap enough without relying on them.
Barratt Redrow recently reported tangible net assets of £6.18bn, or 433p per share. At 281p, the shares trade at around 64% of tangible NAV.
The largest assets are land and work in progress, so I tried stress-testing their value:
- No haircut: 433p/share
- 10% haircut: 380p/share
- 20% haircut: 327p/share
- 30% haircut: 274p/share
Very simplistically, the current share price therefore appears to imply close to a 30% write-down of Barratt’s net land and WIP assets.
Obviously, this isn’t liquidation value. But the downside protection still looks interesting.
Barratt also holds around 5 years of owned land versus a medium-term target of 3.5 years and has sharply reduced new land approvals.
This creates a potential route to shareholder returns that doesn’t require a housing boom:
Reduce land purchases → build out existing sites → convert inventory into cash → return capital to shareholders.
There is also activist pressure for larger buybacks. The argument is simple: why spend £1 buying more land when the company can effectively repurchase £1 of its existing net assets for around 64p?
On top of that, you have potential Redrow synergies, eventual housing recovery, planning reform and possible corporate action.
The main bear case, as I see it, is that the discount is justified because Barratt earns inadequate returns on its large asset base. Cheap assets aren’t necessarily valuable if they remain tied up for years generating poor returns.
At around 279p, though, I think the risk/reward looks attractive.
What am I missing? Is the NAV discount real, or is there a good reason Barratt deserves to trade this far below tangible book value?