Market report: Barratt snaps up Redrow while Snap shares sink
Susannah Streeter, head of money and markets, Hargreaves Lansdown: “The economic winds have not been kind to the housebuilders and Barratt Developments and Redrow clearly believe they’ll be stronger together, giving the new combined company much bigger clout to capitalise on the structural need for housing in the UK. Redrow’s board of directors intend to unanimously recommend that shareholders vote in favour of the £2.52bn deal, which would give them 32.8% of the combined group, with Barratt shareholders holding 67.2%. The new group will be renamed as Barratt Redrow, and the move is expected to produce around £90 million in savings in operating costs of the two companies annually by the end of the third year. Redrow’s share price has struggled to regain its pre-pandemic form and with Barratt enjoying a strong balance sheet and hefty cash reserves it clearly decided the time was right to make a move. Clearly market conditions are still going to be tougher while interest rates stay elevated. However, the latest signs are that recovery is underway, with the Halifax house price index pointing to renewed sentiment among buyers, as better mortgage deals have landed. Barratt has also seen early signs in both reservations rates and buyer sentiment, so there are hopes that the industry is now turning a corner, but there is still a risk demand could fizzle out again. However, with a shortage of homes in great swathes of the UK being pushed up politicians’ priority lists, there is considerable long-term opportunity for a beefed up housebuilder.
Market sentiment has been more ‘glass half full’ as fresh comments from policymakers poured out about the progress made on inflation, helping lift stocks on Wall Street. While still urging the need to progress with caution on future interest rate cuts, Loretta Mester, the Fed’s Reserve Bank of Cleveland and the Fed’s Bank of Minneapolis president Keel Kashkari, welcomed the steps made in taming the price spiral. It was a position echoed by the Fed’s Philadelphia President Patrick Harker. Nevertheless, they have all warned that there is still work to be done, a message likely to be drummed home when other Fed governors speak later today.
Oil prices have ticked up again as tensions in the Middle East continue to play on minds, keeping supply concerns bubbling. While there is still hope a truce will be agreed to cease violence in Gaza, it’s highly uncertain that the flow of weapons to Iran-backed groups will stop. However, prices remain around 5% down from the level reached in late January and are 16% lower than the high reached in September.
There has been a brutal reaction to Snap Inc narrowly missing earnings expectations. Shares sank by 30% in after-hours trading, even though sales lifted 5% to $1.36bn in the final three months of 2023, and losses narrowed. Investors patience has been tested, and it’s clear fewer are optimistic about Snap’s ability to bounce back from the ad slump. Coming so soon after the stellar Meta performance, a nagging worry about the way Snap is being run, has turned into a crisis of confidence. The outlook was disappointing with losses not projected to diminish as fast as expected, there is ongoing concern about the social network’s growth prospects in the face of more powerful rivals, and its ability to keep costs under control. This is despite the company announced on Monday it was laying off 500 employees, around 10% of its global workforce. Snap is confident it can keep growing its user base and intends to hook in more advertising revenue through click to buy ads. However, the success of this strategy is highly uncertain given that the simple message feature appears to a big focus of activity, where such ads may not be easily seen.’’