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Travis Perkins shares drop as JPMorgan downgrades stock in review of housebuilders

Published: 10:43 14 Dec 2017 GMT

house
The market for new-build housing has held up this year despite Brexit uncertainty

Travis Perkins PLC (LON:TPK) shares dropped as JPMorgan Cazenove downgraded the UK housebuilder to ‘neutral’ from ‘overweight’ .

“We downgrade Travis Perkins to neutral, driven by a combination of the relatively strong recent share price performance (leaving the stock trading at the upper end of its valuation range on both an absolute and relative basis), and a slightly more conservative view on its end markets into 2018,” JPMorgan said.

READ: Travis Perkins says on track to achieve full year expectations despite challenging market backdrop

Shares fell 1.66% to 1,539p in morning trading.

The broker said it was increasingly cautious on the outlook for the UK consumer in 2018. In November, Gfk’s consumer confidence index decreased by two points to -12.

JPMorgan cut its earnings per share (EPS) forecast for Travis Perkins by 2% in 2017 and 3% in 2018.

However, it expects the investment that is diluting current earnings will drive “meaningful returns” over the longer-term.

READ: Travis Perkins to restructure plumbing again after more profit leakage

JPMorgan also downgraded Berkeley Group PLC (LON:BKG) to ‘neutral’ and Bovis Homes Group PLC (LON:BVS) to ‘underweight’. Bovis Homes is among its least preferred stocks.

“Rather than indiscriminately buying the sector, we would be looking for stocks with continued self-driven positive earnings momentum; our top picks remain Bellway PLC (LON:BWY) and Persimmon PLC (LON:PSN),” it said.

Shares in UK housebuilders are up more than 30% in the year to date, while earnings were upgraded by more than 20%, as the market for new-build housing held up, JPMorgan said.

The financial services firm continues to expect low double digit EPS growth as the current lead indicators for new build remain relatively robust into 2018.

“Balance sheets, cash return and high dividend yields remain strong and sustainable,” it said.

But JPMorgan’s balance of recommendations is no longer heavily weighted towards ‘overweight’ and it said negative sentiment on the UK economic outlook could result in a sector de-rating.  

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