Tuesday, Morgan Stanley (NYSE:MS) resumed coverage on shares of Barratt Developments Plc. (LON:BDEV:LN) (OTC: BTDPY) with an Equalweight rating and set a price target of GBP5.90. The rating follows the company's acquisition of Redrow (LON:RDW), a move that issued 473 million new Barratt shares.
The transaction, based on Barratt's share price as of August 22, valued Redrow at approximately £2.6 billion, or 1.3 times the price-to-book (P/B) based on Redrow's book value in December 2023.
The acquisition is significant for Barratt Developments as it now becomes the largest listed house builder by total completions and revenue. In terms of forecasts for the combined company in the calendar year 2023, Barratt's completions are expected to increase by 32%, with a corresponding revenue rise of 37%. Gross profit is anticipated to see an even larger increase of 52%.
The deal is also expected to enhance the average selling price (ASP) for Barratt by 6%, bringing it to £331,000. This increase is attributed to the inclusion of Redrow's premium brand. Furthermore, the operating margin for Barratt is projected to improve from 12% to 14%. This improvement in margin is anticipated to be even greater once the synergies from the acquisition are realized.
The strategic acquisition by Barratt Developments positions the company for significant growth in both scale and financial performance. The Morgan Stanley coverage update reflects the new business landscape following the integration of Redrow into Barratt's operations.
InvestingPro Insights
As Barratt Developments Plc (BTDPY) integrates Redrow into its operations, the financial landscape of the company is a key focus for investors. According to InvestingPro data, the company holds a market capitalization of $6.93 billion, with a Price/Earnings (P/E) ratio of 24.2. More recent metrics show an adjusted P/E ratio for the last twelve months as of Q2 2024 at 15.42, reflecting the market's valuation of the company's earnings relative to its share price.
InvestingPro Tips suggest that Barratt Developments holds more cash than debt on its balance sheet, providing a degree of financial stability. Moreover, the company has been profitable over the last twelve months. However, analysts anticipate a sales decline this year, and the company is expected to face challenges with weak gross profit margins and a projected drop in net income. Despite this, Barratt's stock price has shown resilience with a 38.73% one-year total return as of the date provided.
For investors seeking more comprehensive analysis, InvestingPro offers a range of additional tips, including insights on the company's profitability and stock price volatility. The full suite of InvestingPro Tips for Barratt Developments can be found at https://www.investing.com/pro/BTDPY, providing a deeper dive into the company's financial health and market performance.
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