Bottom line: Patience needed

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The Independent Online
WHO would float a housebuilder in the current market? Fixing the price for Redrow, the latest addition to the sector, has proven a nightmare for the company and its advisers alike.

Redrow's prospects look good enough on the surface. Pent-up demand for housing is strong, the bounce in house prices is likely (as ever) to take everyone by surprise, and rumours of an explosion in land prices are probably much exaggerated.

The sector will doubtless end the year as a star performer. The company itself is indisputably well run and has had a good track record through the recession.

Nevertheless, yesterday's offering - 87 million shares at 135p - should be avoided for the time being. Housebuilding shares have run ahead of themselves and, despite sliding almost 10 per cent since the beginning of March, the shift in sentiment probably still has a little way to run.

Admittedly, as the market has fallen Redrow and its advisers have been trimming back their estimates of what the company is worth. Given forecast pre-tax and exceptional earnings of pounds 21m to the year to June, it is priced at a discount of about 10 per cent to quality peers such as Wilson Connolly. The 2.5 per cent yield will likewise be near the average.

Normally that would be acceptable, although certainly not generous. And the fact that Steve Morgan, Redrow's founder, has decided to keep 60 per cent rather than the 50 per cent he originally intended because (he insists) he can think of nowhere better to put his money should give confidence for the longer term.

But investors worrying whether to subscribe now should exercise patience. Some time after dealings begin on 17 May will probably offer a better buying opportunity.

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