After a golden run, characterised by generous special dividends in many cases, the housebuilders have fallen sharply into buying territory, Berenberg suggests.
“The UK housebuilders have endured a tough 2018, falling 16% ytd, with concerns about cooling house price inflation and rising build costs fuelling speculation that the cycle has peaked,” the broker noted, as it initiated coverage on a plethora of stocks in the sector.
The ones it has initiated with ‘buy’ recommendations are:
- Barratt Developments PLC (LON:BDEV), with a price target of 870p
- Bellway PLC (LON:BWY), with a price target (PT) of 3,760p
- Bovis Homes PLC (LON:BVS), PT 1,340p
- Redrow PLC (LON:RDW), PT 650p
- Taylor Wimpey PLC (LON:TW.), PT 210p
- Countryside Properties PLC (LON:CSP), PT 430p (from 335p)
- MJ Gleeson PLC (LON:GLE), PT 890p (from 820p)
The following companies have been initiated with a ‘hold’ rating:
- Berkeley Group Holdings PLC (LON:BKG), PT 3,360p
- Crest Nicholson Holdings PLC (LON:CRST), PT 440p
- McCarthy & Stone PLC (LON:MCS), PT 110p
- Persimmon PLC (LON:PSN), PT 2,760p
Berenberg thinks this year's slide has been overdone and the macroeconomic outlook remains supportive.
"Housing is still affordable in most regions of the UK and with the support of the government’s Help to Buy (HTB) scheme we expect the new build sector to continue to outperform the wider market," the broker said.
Berenberg concedes that the housing market remains the proverbial political football in the UK, with so many people regarding a home as a surrogate pension pot rather than a place in which to leave.
What Berenberg calls "the supposed lack of supply" may get the headlines but in its view, the problem with the housing market is too much readily available credit.
"Better lending standards since the crisis (a positive, in our view) have increased deposit requirements for new buyers, reducing effective demand. With the government facing the impossible task of maintaining a healthier mortgage market while avoiding significant house price declines, we view the continuation of a deposit subsidy as the most politically expedient solution. Even if HTB is extended with caps on prices or income, we expect little impact on overall demand," Berenberg said.