Simon Caufield of SIM Limited presented his investment thesis on Barratt Redrow plc (UK: BTRW) at European Investing Summit 2025.
Thesis Summary
Barratt Redrow is the UK’s largest housebuilder, operating under three distinct brands: Barratt, David Wilson, and Redrow, which target first-time buyers, the mid-market, and the premium market, respectively. Simon highlights the company’s operational strengths, stemming from its scale and investment in off-site factory production for components like timber frames and bathroom pods. This approach enhances efficiency and lowers construction costs. The multi-brand strategy facilitates a wider customer appeal and a faster sales rate, which makes larger development sites viable for the company.
Simon emphasizes the conservative, cost-conscious culture, which is led by a CEO who was the former CFO. This culture prioritizes efficiency and ROI. A key operational differentiator for Barratt Redrow is its centralized land-buying process. Unlike peers who may allow regional divisions to make purchases, all land acquisition at Barratt is signed off by the CEO or CFO. Simon believes this centralized control prevents the company from overpaying for land, a common pitfall in the industry.
The core of Simon’s thesis rests on a market misunderstanding of UK housing shocks. The consensus view is that UK houses are unaffordable and that falling prices and volumes will lead to a drop in homebuilder earnings. Simon argues this view is both wrong and irrelevant. He believes it is “wrong” because the UK has a structural housing shortage and demand is typically deferred rather than destroyed. He argues it is “irrelevant” because of the industry’s unique operating model, which the market fails to appreciate.
Simon explains that UK builders hold 3-4 years of land as inventory. During a downturn, as volumes fall, they stop buying new land. This action causes OCF to increase as working capital is released. Simultaneously, land prices fall at a much faster rate than house prices. The company can then restart buying land at depressed prices, which feeds through to higher margins 3-4 years later. Simon notes that the 2022-2025 period saw a shock equivalent to 83% of the GFC, creating the same setup that led to a sharp recovery in earnings and the stock price after 2011. He believes sell-side analysts have missed this and that earnings upgrades are forthcoming.
Simon notes that the shares recently traded at a 10-year low, down over 50% from their 2020 high. He estimates a liquidation value of £12 billion, which is more than twice the recent market cap of £5.7 billion. This suggests the stock trades at approximately 47% of its liquidation value. This valuation is derived from building out the existing owned and optioned land bank, plus strategic plots already in local authority plans, and conservatively excludes the value of 224,000 other strategic plots and the brand itself.
Disclaimer
European Investing Summit 2025 was held from October 28 to November 3, 2025. The content of this website is not an offer to sell or the solicitation of an offer to buy any security. The content is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth on this website. BeyondProxy’s officers, directors, employees, and/or contributing authors may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated herein.
Slides
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