viewRedrow PLC

Housebuilding shares "still attractive" say analysts; best returns seen at Redrow and Bellway

“Balance sheets are as strong as ever, with net cash on average and we see limited downside to dividends even under a stress-case,” said analysts at JPMorgan Cazenove

Redrow plc -

UK housebuilders are still worth buying, JPMorgan Cazenove and Credit Suisse believe, restarting coverage of the sector with some share tips on Tuesday.

UBS also upped share price targets for a host of sector stocks, expecting the general election to reduce macro uncertainty, boost consumer and investor confidence, and bring back “more meaningful” house price inflation in the short term.

These notes follow upbeat comments from others sector analysts in the new year, including Citigroup, Berenberg and Canaccord 

Supportive backdrop

JPMorgan also highlighted the continued supportive industry backdrop for the long-term, including housing undersupply, “encouraging” government policy and “supportive” levels of affordability despite elevated house prices. 

The analysts said their forecasts for low single-digit sales growth for the sector and “largely stable” margins were still “conservative”.

“Balance sheets are as strong as ever, with net cash on average and we see limited downside to dividends even under a stress-case.”

Even though share prices have bounced 19% since the Tory election win, the JPM analysts said valuations are “attractive” at a slight discount to the long-term average.

Redrow plc (LON:RDW), Persimmon PLC (LON:PSN), Taylor Wimpey PLC (LON:TW.) and Bellway PLC (LON:BWY) are the “most attractive” names on its stock screen, while Vistry Group PLC (LON:VTY) and Crest Nicholson Holdings PLC (LON:CRST) screened as the “least attractive”.

Potential upside

UBS was in accordance as despite shares re-rating to around 1.85 times tangible net asset value (TNAV) from nearer 1.2 times TNAV in November, putting this ratio towards the higher end of history and materially above the long-term average of 1.23, “we think this is justified although recognise expectations of a market recovery are now substantially higher than before the election”. 

The bank’s analysts kept their recommendations unchanged, with "top picks" being Berkeley, Redrow and Persimmon, while bumping up their target prices significantly, with Crest Nicholson getting the biggest lift, up to 500p from 385p, followed by Redrow’s hike to 1,030p from 820p and Bellway’s to 4,620p from 3,700p.

UBS lifted its target for TW to 230p from 185p, for Persimmon to 3,250p from 2,670p, Barratt to 860p from 720p, and Vistry to 1,380p from 1,170p.

Mccarthy & Stone’s target price was nudged up modestly to 132p from 125p, while Berkeley was left unchanged at 6,275p.

Taking in the impact of the dividend, UBS sees the biggest potential upside at Redrow, followed by Bellway, Berkeley and Taylor Wimpey.

Over at Credit Suisse, the re-initiation note saw Redrow and Bellway also included as ‘outperform’ recommendations, with target prices of 930p and 4,650p respectively. 

Countryside Properties was kicked off with a ‘neutral’ stance and a 520p target, while Crest Nicholson was least liked and place at ‘underperform’ with a target price of 445p.

Quick facts: Redrow PLC

Price: 443.6 GBX

Market: LSE
Market Cap: £1.56 billion

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