Barratt Redrow plc (LSE:BTRW) shares dropped more than 2% on Monday after Deutsche Bank lowered its earnings projections and reduced its price target by 15%, pointing to weaker trading momentum and rising fire-safety remediation costs.
Analyst Chris Millington cut the target to 454p from 536p, while retaining a “buy” recommendation on the stock, which last closed at 388.90p.
Deutsche Bank reduced its underlying pre-tax profit forecasts by 9% for fiscal 2026, 6% for FY27 and 7% for FY28. The revisions followed Barratt’s first-half results, which Millington said were largely in line with expectations but underscored the impact of difficult market conditions.
According to the broker, subdued demand in the first half weighed on both profit margins and the forward order book. In addition, Barratt’s £1.3 billion provision balance remains a key drag on valuation. Deutsche Bank said this level of provisioning is likely to constrain cash generation, even as management pursues outlet growth and margin recovery initiatives.
Reflecting these pressures, the brokerage lifted its discount rate assumption from 8% to 10%, aligning it with longer-term historical averages and better accounting for the financial impact of ongoing fire-safety remediation work.
Despite near-term challenges, Deutsche Bank expects Barratt to deliver above-average profit growth over the coming years, supported by plans to expand outlets and rebuild margins. The bank forecasts a FY28 return on tangible equity of 8.5%, suggesting the current valuation of 0.79 times price-to-net tangible assets is broadly justified.
Even so, Millington argued the shares could warrant a higher multiple if market conditions improve, particularly if aided by potential government measures to stimulate housing demand.
The revised 454p price target is based on Deutsche Bank’s estimate of the company’s net tangible asset value for calendar year 2026.
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