Housebuilder shares surged 17% during the first quarter as the sector continued to recover from the battering it received in the weeks following the EU referendum.
By 30 March, the UK’s listed housebuilders had made an average gain of 81% from the lows reached in the wake of the vote, according to consultancy firm Building Value.
In the case of Redrow, the recovery has been particularly dramatic, with the FTSE 250 company’s shares rallying 410%.
The combined value of the sector now stands only a fraction short of its level on 23 June last year. Indeed, on 23 March, it nudged slightly above that point.
Tony Williams, chief executive of Building Value, says the steep plunge in prices after the vote was a “knee-jerk overreaction” and that the recovery over the past nine months reflects the sector’s resilience.
Upward trajectory
In the first three months of this year, the sector outperformed the wider market by a significant margin – the 17% weighted average gain made by housebuilders contrasts with an increase of just 3% in the FTSE 100.
Watkin Jones led the way, rising 27%, followed closely by Taylor Wimpey, which increased 26%. Eight other companies rose by between 14% and 20% .
At the bottom of the pile, Countryside and Inland were in negative territory, with the former affected by a major sale of shares by Oaktree Capital Management and the latter by a contractor’s failure.
Positive sign
Bovis Homes also performed poorly, climbing just 3% during the quarter. Its shares plummeted in February, falling 10% in a day after the company revealed a slump in full-year profits and set aside £7m to address complaints about the build quality of its homes. They then recovered on the back of takeover offers from rivals Redrow and Galliford Try.
Viewing the bid interest for the troubled housebuilder as a positive sign, Williams says: “In essence, these bids spoke volumes about long-term confidence in the UK and its demand for new housing.”
Bovis Homes’ Easbourne development
The sector is in a strong position, he adds, with consensus analyst forecasts projecting earnings growth of 9% and 11% in 2017 and 2018 respectively. Dividend yields are also expected to climb to a healthy 4.3% next year.
However, Williams cautions that the scope for further short-term capital gains is now limited, “If you are purchasing for a granddaughter, no worries. But the easiest money you will ever make, ie buying on the Brexit collapse, has been made,” he says.