logo-loader

Jefferies cuts McCarthy & Stone to ‘hold’ amid caution over Last Time Buyer market as Brexit vote second anniversary approaches

Published: 11:36 20 Jun 2018 BST

Last Time Buyers
However, the Jefferies' analysts added, the upside risks are twofold - a reversal of the demand decline and growth in the Last Time Renter market

Jefferies International has cut its rating for McCarthy & Stone PLC (LON:MCS) to ‘hold’ from ‘buy’ and chopped its target price to to 116p from 267p following the retirement homes builder’s recent profit warning, amid caution over the Last Time Buyer market as the Brexit vote second anniversary approaches.

In a note to clients, analysts at the US investment bank pointed out that McCarthy & Stone's business took a hit on 23 June 2016 and is still feeling the aftershocks almost two years later.

READ: McCarthy & Stone's chief executive, Clive Fenton, off to his retirement home after profit warning

They noted that even though the majority of Last Time Buyers voted for Brexit, it seems to have made them more cautious around the housing market than Help to Buy aided First Time Buyers.

The analysts said: “The issue we see facing McCarthy & Stone is that after two years of increased Last Time Buyer inertia, we do not see how or why this paralysis will lift before the dust settles on the outcome of the UK's departure from the EU.”

They added: “We remain fans of McCarthy & Stones retirement living products and services, and its unparalleled performance in Customer Satisfaction Surveys (13 consecutive years a 5 star builder) suggests that the water at the well of McCarthy & Stone certainly refreshes the parts others cannot reach. The problem is getting people to take the plunge.”

Profit estimates chopped

The Jefferies analysts cut their full-year 2018 operating profit estimate for McCarthy & Stone by 32% to £72.5mln from £105.9mln, which is towards the mid-point of the company’s current guidance range of £65mln-£80mln.

Looking beyond, they also cut their operating profit estimates for full-year 2019 by 49% and for full-year 2020 by 48%.

They concluded: “We see the issue facing McCarthy as a market decline in Last Timer Buyer Demand and we think that growth will face an increasingly uphill battle until Last Time Buyers are comfortable with the terrain of a post Brexit UK.”

Some upside risks

However, the analysts added, the upside risks are twofold - a reversal of the demand decline and growth in the Last Time Renter market.

They said: “We are long term bulls on the Last Time Renter market (where a person rents rather than buys their retirement apartment, funding it from renting out their family home).

“However, in the short to medium term we expect the growth of this emerging market segment to be sluggish as Last Time Renter investors may seek bulk discounts which we believe McCarthy would be unwise to accept.”

Shares down again

In late morning trading, McCarthy & Stone’s shares were 2.8% lower at 105.2p, having plummeted by around 15% yesterday after accompanying its profit warning with news of the retirement of its chief executive officer, Clive Fenton, having reached the age of 60, from the end of August.

Aside from the Jefferies downgrade, a number of other brokers lowered their target prices for McCarthy & Stone today, including UBS (102p from 140p, reiterates ‘sell’), and Deutsche Bank (165p from 189p, retains ‘buy’).

HANetf founder and co-CEO discusses shift to active management in ETF market

HANetf founder and co-CEO Hector McNeil tells Proactive's Stephen Gunnion about shifting trends in the exchange-traded fund (ETF) market in the United States, indicating a big move towards active management within ETFs. Despite the European market lagging behind the US by three to five years,...

14 hours, 20 minutes ago