Major Barratt shareholder calls on board to launch ‘aggressive’ share buyback programme

One of Barratt Redrow’s biggest shareholders has urged the board of the housebuilding giant to embark on an “aggressive” share buyback programme and threatened to “escalate” action if it doesn’t.

Phoenix Asset Management Partners, Barratt’s third largest investor, which owns around 5% of the firm’s shareholdings, has published a 430-page document outlining the case for the firm buying back as much as £1bn of shares a year. Phoenix believes Barratt’s shares are undervalued, meaning it could be subjected to a takeover more easily as a result.

Phoenix said its document “makes the case for the company to adopt an aggressive share buyback programme not just to take advantage of the current undervaluation but also as a way of utilising the sector’s perennial undervaluation to create long term value for loyal shareholders.”

It said: “We are sharing our work with the goal of having fellow shareholders and other interested parties join us in encouraging the board to materially step up their share buyback programme.”

Barratt’s share price has fallen in recent months from 400p in early February to 286p this morning.

In comments to the Times published over the weekend, Guy Channon, co-founder and chief investment officer at Phoenix Asset Management Partners, said: “We will escalate if nothing happens. This is the first shot, allowing them to get ahead of the game and do it themselves. But ultimately we can’t just sit there and get nothing.

“Shareholders can have a say through votes. I don’t want to go down that route — it’s a lot of effort. But we will do it, if that’s what it comes to.”

Channon added: “Rather than sit there in the UK market and get picked off by someone buying the business, you turn it into a virtue by just having a lot of buybacks.”

The Phoenix document says Barratt is “selling at an absurdly cheap price”, at a discount of 40% to tangible net assets. It said housebuilding financial statements are “confusing, often misleading and at a minimum opaque”, with a divergence between accounting profitability and cash generation.

It said: “If a sector is prone to long term undervaluation because of noise, opacity, cyclicality, politics then using all excess capital for buybacks creates extra value for those shareholders who remain.”

A spokesperson for Barratt Redrow said: “The board is committed to acting in the best interests of the company and its stakeholders, including delivering long-term value for shareholders.

“As the board has demonstrated in recent years, it frequently evolves its capital allocation policy where appropriate to reflect changing market conditions. It continues to keep the policy under review in light of the current environment and welcomes ongoing dialogue with all shareholders.”