Redrow Caps Cladding Compensation – Is This Really Over?

Trade Redrow Shares Your Capital Is At Risk
Tim Worstall
Updated: 6 Apr 2022

Key points:

Redrow (LON: RDW) shares have suffered along with the rest of the building industry over the fallout from the Grenfell Tower fire. As we all know, that disaster led to a rethink about the cladding that had been put on high-rise buildings. It’s rather a swizz, given that it was building regs which asked that such insulation be applied, and now the blame is devolving upon builders over that cladding. But still, that’s how politics works.

new-recommended-broker-banner

Given that this is how the system works for the Redrow share price, as with those of other builders, to improve it’s necessary for there to be a settlement on the issue. Which is what Redrow is attempting to do in this announcement to the market.

As the company points out, it has not, traditionally, built for the high-rise market. So, when there was that political pressure for denser developments, it largely contracted out, to prime contractors, that work that did have to be done. The few developments they did actually build themselves they’ve already made provision to correct, putting aside £36 million to do so.

Also Read: Options vs Stocks – Which to Choose as a Trader?

Again, given politics, this isn’t enough. Government has decided that more must be done, and so Redrow has now made the £164 million provision to cover all of its projects. This will come as one single hit to the 2022 accounts as an exceptional item.

At which point we could say Phew and that’s that. Except that’s not quite it. One part is that there is more politics going on. There are demands – perhaps suggestions – that the industry as a whole should be collectively responsible for all the costs. That is, no one builder will be able to cap costs simply by dealing with their own constructions. That idea might be beaten back and it might not be.

The other is more cheerful for Redrow shareholders. Which is that, as the company says, the final disposition of those costs already provided for might not entirely fall on the shoulders of Redrow shareholders. For there were those prime contractors, suppliers and so on. Some part, or even all, of the blame and costs might righteously fall upon them. Or, of course, their insurers, which would be a benefit.

So while Redrow might take that hit, that exceptional item on the accounts, now it is possible that some to much of it will bleed back into the accounts over the years as the likely trail of legal cases works its way through the system.

Possibly the way to think of this is as that £164 million providing a likely – not certain, but likely – cap on those cladding costs, but it is a cap, not the final amount which might well be, legal cases to determine, lower.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage . 68 % of retail investor accounts lose money when trading CFDs with this provider . You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money .