There are many reasons for investors to be bearish on the sector but equally, there is “no need for bears to hibernate”, according to Deutsche Bank
In the wake of the government’s decision about the housebuilders contributing more to retrofit cladding on high-rise buildings, Deutsche Bank (DB) has reviewed the sector.
The broker says there are plenty of things to encourage the bulls but there is “no need for bears to hibernate”.
Supporting the bull case are buoyant high prices, which have been sufficient so far to offset rising build costs and ongoing government support, even if the government’s enduring love affair with Help to Buy is, in DB’s view, “on the rocks”.
Most of the players in the sector have order books that are up year-on-year so there is scope for enhanced scope for shareholder returns.
For the bears, there is the prospect of corporate tax rises from next April, while Michael Gove, the Secretary of State for Levelling Up, Housing and Communities, is asking builders to contribute £4 billion to a fund that will repair unsafe buildings between 11 and 18 metres tall in the wake of the Grenfell Tower tragedy.
“Whether the net effect of inflation stays favourable is a moot point as existing contracts roll off,” DB added.
“The planning system is creaking. The spectre of rising interest rates, a perennial anxiety, seems less impactful given affordability headroom, though pressure on household budgets is intense, exacerbated by spiralling energy costs,” the broker added.
Adjusting its forecasts for known tax changes, Deutsche Bank said it is a case of “two up, two down” in the sector with upgrades for The Berkeley Group Holdings PLC (LSE:BKG) and Crest Nicholson (LSE:CRST) PLC and downgrades for Countryside Properties (LSE:CSP) PLC and Persimmon PLC (LSE:PSN).
Berkeley and Crest Nicholson move from ‘hold’ to ‘buy’ with the target price rising to 5,429p from 4,555p for the former and to 438p from 442p for the latter.
Countryside and Persimmon both move from ‘buy’ to ‘hold’; the target price for Countryside is slashed to 342p from 521p while Persimmon’s target price is chopped to 2,897p from 3,268p.
Read More: The Berkeley Group Holdings PLC and Crest Nicholson PLC upgraded by