U.K. Homebuilder Stocks Jump on Gallifort Try’s Forecast

Barratt Developments Plc and Taylor Wimpey Plc, the U.K.’s two largest homebuilders by volume, rose to the highest in almost five years after competitor Galliford Try Plc said 2013 sales are off to a “cracking start.”

“We are very encouraged by what is happening” on the U.K. housing market, Galliford Chief Executive Officer Greg Fitzgerald said in a telephone interview.

Barratt rose 2.2 percent to 239 pence, the highest price since April 2008. Taylor Wimpey jumped 2 percent to 79.1 pence, the highest since May 2008. Galliford Try gained 0.8 percent to 905 pence, the best since November 2007. Six of the seven stocks in the Bloomberg EMEA Home Builders Index advanced. Redrow fell 0.2 percent to 190 pence

U.K. house-construction companies are reporting increasing sales of new homes and higher average prices, resulting in improving profitability after slumping during the global recession in 2008.

Under the Bank of England’s six-month-old Funding for Lending Scheme, which offers incentives for financial institutions to increase mortgage availability, loan approvals rose to an 11-month high in December. The figure is still about half the level of 2007.

Industry Growth

Galliford Try’s sales in the first seven weeks of 2013 averaged 0.67 housing units per outlet a week compared with 0.46 for the entire second half of last year, Fitzgerald said. Growth will probably continue month-on-month through May, he said. The housing market will be sustained as demand outstrips supply, Fitzgerald said. Industry output of 115,000 homes a year compares with a government target of 240,000 a year, he said.

“The banks are sorting themselves out, and the government lending schemes are helping,” Fitzgerald said. “As more mortgage availability comes about, the housing market will become a better place.”

The 33 percent increase in the interim dividend to 12 pence a share is part of a “sustained and progressive” payout policy, Fitzgerald said.

Revenue in the six months through December fell 9.2 percent from a year earlier to 678.3 million pounds ($1.04 billion) as Galliford deliberately reduced contracting activities to protect margins, the London-based company said in a statement. Pretax profit was almost unchanged at 32.3 million pounds. The company is now a housebuilder with a contracting business rather than the other way around, Fitzgerald said.

Stripping out a gain from the sale of land and charges for an executive incentive plan a year earlier, first-half profit rose 12 percent from 28.8 million pounds, Fitzgerald said. Profitability at both the homebuilding and construction units beat the company’s forecasts, he said.

The Bloomberg EMEA Home Builders Index rose more than 60 percent last year, exceeding an 8.2 percent increase in the FTSE All-Share Index. The index has advanced a further 6.4 percent this year, slower than the 8.8 percent gain in the All-Share Index.