UK Housebuilders are strong this week. The reason is optimism about Brexit. Not so much the UK leaving the EU. More the possibility that it doesn’t. As we bear down on the 29 March deadline, speculation is abound about a soft Brexit and a delayed Brexit. There’s now even the chance of a People’s vote/2nd referendum, and no Brexit at all.

As resilient as the sector may be, it is still highly sensitive to UK consumer confidence. And Brexit uncertainty keeps rising, businesses refusing to invest. Some are even leaving our shores, meaning job security isn’t what it was. And if you’re not certain about your job prospects, the last thing you seek to do is take on more debt for a home. So anything hinting at less of it is a positive.

A look at the housebuilders shows Barratt Developments +3.3% today, extending a post-Christmas rally to a whopping 37%. The shares did well in January amid a general rebound. But it was half-year results on 6 Feb (it kicked off results season for the sector) that took it above November highs from which it has rallied further.

Completions rose 4.1% year-on-year, revenues were up 7.2%, and pre-tax profits +19.1% (margin expansion). Forward Sales grew 7.3% although Reservations fell by 3-5% and the average sale price was flat; higher London prices offsetting regional prices  down 1.8%.

Trading was in-line and guidance unchanged, however, plans for £175m special dividends a year for 2 years really piqued investor interest. Especially after an 11.6% hike to the interim dividend. Even after the recent rally, it still offers a generous 8% yield.

As we write, Redrow shares are +3.1%, testing September highs. It also reported 6 Feb with first-half completions up 12%, revenues up 9% higher and pre-tax profit up 5% (in-line with consensus, but margin contraction).

The interim dividend and order book were also 11% higher. The bad news? Christmas-to-early-Jan trading was subdued.

Bellway, +4.3% today, trades fresh 2019 highs, potentially on the second leg of its own December rebound. It reported 7 Feb with first half revenues +12%, completions +5.6% and average selling price +6.5%. Weekly reservations were up 2.8%, but cancellations rose to 13% and its profit margin contracted (like Redrow). Management left guidance unchanged, it sounded cautious on Brexit uncertainty

Persimmon is currently flirting with recent highs too after well-received results this morning. This has offset a share price drop yesterday related to negative speculation about the Help-to-Buy scheme.

2018 legal completions up 1% (seen flat in 2019), group revenues up 5% (beat 1% consensus) and pre-tax profits up 12.9% (marginal beat; margin expansion). Forward Sales of £2bn, however, were flat, and 8 week average private sales fell 4% due to a tough comparable after last year’s stamp duty cut.

The final dividend was left unchanged, but it will pay an additional 125p special dividend (5% yield). This puts the shares on an even more attractive 10% yield which puts it top of the sector.

As we write, Taylor Wimpey (reports results on Wednesday), Bovis (Thursday) and Berkeley Group (15 March) all show potential for breakouts. Last time they had results day trading ranges of 4-7% and finishing 3-6% higher on the day.

Could it be that strong results help them too? Will we see a rise in profitability, special dividends, or will management sound cautious? Or could more Brexit headlines be the architect for another push north?

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Mike van Dulken, Head of Research, 26 Feb 2019