The housebuilder’s long-term returns look to be overvalued, while near-term returns may be materially underestimated, analyst Emily Biddulph suggested.
“We believe Berkeley Group’s current strength of position, and the near-term potential profitability of the land bank remains relatively underappreciated,” said the analyst.
Biddulph’s pre-tax profit estimate of £317mln for 2014 is 22% ahead of consensus opinion, driven largely by her view that guidance over the timing and value of large projects coming to market is likely to prove conservative.
She also reckons the favourable conditions of the London housing market will play into Berkeley’s hands as it continues to attract investment from overseas buyers, while the wider market “continues to be underpinned by both population growth and an undersupply of housing”.
Though she adds just 4p to her target price, which now stands at 1,620p, Biddulph believes the stock has the potential to reach 2,000p if recent land investment drives even slightly higher returns.
With the stock currently changing hands at 1,554p – up 39p or 2.6% today – the analyst retains her ‘overweight’ recommendation.