What does Bank of America Merrill Lynch know about Brexit that the rest of the market has overlooked?
For it has made a raft of upgrades across the UK house-building sector on the “assumption that a hard, or no deal Brexit is avoided.
That’s a big assumption given the parliamentary deadlock over the issue.
Cash generation is key
It likes the cash generation capabilities of both companies especially when converted (and have the ability to continue to convert) into ordinary and special dividend payments.
Taylor Wimpey’s update earlier this week suggested the sector still had some steam left.
It completed 14,947 new homes, for a rise of 3%, while its order book grew to £1.78bn.
Taylor Wimpey confounds bears
“Despite wider macroeconomic uncertainty, the housing market remained stable during 2018 and we had a good trading performance,” said Pete Redfern, the chief executive.
The company reiterated its aim to return £600mln to investors, which equates to just over 18p a share.
Returning to the BofA note, the American bank’s analysts have shifted their stance on the sector as a whole to neutral from negative.
In order to become more positive, it said it would need to be convinced interest rates were not going up, GDP will accelerate (not decelerate), there’s no shortage of skilled labour and that there really is a structural under-supply of housing in the UK.