Simply because Barratt Redrow (LSE: BTRW) has dropped 23% from its one-year excessive doesn’t imply it is likely one of the greatest FTSE shares to purchase. But it surely may very well be — all of it relies on how a lot worth is left within the inventory.
This can be a completely different factor to cost, which is just regardless of the market is keen to pay at any level. Worth as a substitute displays the core fundamentals of the underlying enterprise.
So is there any worth left right here and, in that case, how excessive might the inventory go?
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Brief-term versus longer-term
Within the quick time period, the shares have fallen attributable to softer UK housing demand and better mortgage charges. The Halifax Mortgage Affordability Index reveals mortgage prices at 36.2% of earnings, properly above the lengthy‑time period common. And common two‑yr mounted mortgage charges are 6.20% (75% loan-to-value) and 6.57% (90% loan-to-value) — nonetheless far greater than pre‑2022 ranges. This stays a threat for the inventory.
Nevertheless, the longer-term image appears to be like extra encouraging. Analysts’ forecasts are for additional light rate of interest reductions over the medium time period (to end-2028) as inflation continues to ease. This could give consumers extra confidence out there and increase affordability towards extra regular ranges.
A broader fillip to the housing market ought to come as the federal government strikes in the direction of its goal of 1.5m new properties being constructed by 2029. Varied initiatives are in place for consumers as affordability improves, together with shared possession and mortgage assure schemes.
Taken collectively, these developments counsel the present weak spot is cyclical fairly than structural, with situations doubtless to enhance over time.
Latest outcomes underline this theme
Barratt’s H1 2026 numbers, launched on 11 February, underline this distinction. Adjusted revenue earlier than tax fell 13.6% yr on yr to £199.9m, as margins softened in a nonetheless‑subdued market.
Nevertheless, complete completions rose 4.7% to 7,444 properties, helped by stronger personal rental sector volumes. This displays funding teams shopping for total blocks or phases instantly from the housebuilder to ascertain long-duration rental property.
Income elevated 10.5% to £2.63bn, supported by a 4.9% rise in wholly‑owned common promoting costs to £357,800.
On the identical time, the Barratt’s confirmed £97m of value synergies and maintained a strong £173.9m web money place. It additionally saved its full-year completion steering unchanged at 17,200-17,800 properties.
All of this factors to a enterprise holding its floor now whereas constructing clear operational leverage for when situations enhance.
The place ‘should’ or not it’s buying and selling?
A discounted money circulation (DCF) evaluation identifies the place a inventory ought to commerce by projecting future money flows and discounting them again to at this time. Analysts’ DCF modelling varies — some extra bullish than mine, others extra bearish — relying on the variables used.
Nevertheless, based mostly on my DCF assumptions — together with a 9% low cost price — Barratt’s shares are 53% undervalued at their present £3.75 value.This means a ‘fair value’ of round £7.98 — greater than double the place the inventory trades at this time.
This hole between the present value and the honest worth is extraordinarily essential for long-term buyers. That’s as a result of asset costs gravitate in the direction of their honest worth over time.
Consequently, this definitely appears to be like to me like among the best FTSE 100 shares to contemplate shopping for proper now.
And if it weren’t for the truth that I’m targeted on high-dividend-yielding shares, I’d think about it myself.
