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Berkeley upgraded but Redrow and Taylor Wimpey downgraded as JP Morgan realigns view of housing sector amid pandemic

While the bank said the impact of coronavirus “remains uncertain”, they took a cautious stance and estimated a 30% decline in housing completions for 2020


The Berkeley Group Holdings PLC (LON:BKG) has been upgraded to ‘overweight’ from ‘neutral’ while Redrow PLC (LON:RDW) and Taylor Wimpey PLC (LON:TW.) have been downgraded to ‘neutral’ from ‘overweight’ by JP Morgan as the US investment bank realigned its views on the UK’s housebuilders.

While the bank’s analysts said the impact of the coronavirus pandemic “remains uncertain”, they took a cautious stance and estimated a 30% decline in housing completions for 2020, although they said that this was a conservative estimate.

READ: Redrow ranks highest as UBS says housebuilders offer "favourable risk/reward" from coronavirus

“Overall, this leads to an average margin compression of [300 basis points] for the sector, leading to c.40% cut to the sector’s bottom line on average”, JP Morgan said, adding that they saw potential for a further 45% decline on their revised pre-tax profit estimates should completions also fall by 45%.

With companies in the sector also withdrawing their dividends, the bank said it was focusing on balance sheets instead, saying Taylor Wimpey and Redrow were among those “with limited cushion”.

Analysts also slashed target price across the board, with Berkeley cut to 4,520p from 5,370p while Redrow was reduced to 420p from 950p and Taylor Wimpey was cut to 110p from 250p.

In late-morning trading on Tuesday, Berkeley shares were up 0.4% to 3,613p while Redrow dropped 1.6% to 367.5p and Taylor Wimpey slipped 2.1% to 114.9p.

Quick facts: Berkeley Group

Price: 4431 GBX

Market: LSE
Market Cap: £5.57 billion

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