Shares in housebuilders rose strongly following an upbeat research note from HSBC which believes the downturn in the housing market is more than priced-in to current share prices.
Barratt Developments PLC (LSE:BDEV), Taylor Wimpey PLC (LSE:TW.) and Berkeley Group Holdings PLC (LSE:BKG) were all prominent risers in the FTSE 100 up 2.1%, 1.9% and 1.9% respectively. Persimmon PLC (LSE:PSN) fell back 2.9% but the stock traded ex-dividend today.
In the FTSE 250, Redrow PLC is 3.5% to the good while Crest Nicholson PLC and Bellway PLC are up 3.7% and 3.5% as well. Vistry Group PLC (LSE:VTY) was also 2% higher.
HSBC upgraded ratings on six volume housebuilders to buy from hold, reiterated partnerships play Vistry at buy and upgraded London regeneration specialist Berkeley to hold from reduce.
The six companies put on the buy list are Barratt, Bellway, Crest Nicholson, Persimmon, Redrow and Taylor Wimpey.
“We now have greater visibility about the shape of the current housing market downturn for the housebuilders’ profits and cash flows and their recovery from it, which we believe to be more than priced-in to share prices,” analysts at the bank said.
On average target prices have been increased by 29%, implying the most upside for Redrow at 45% and Vistry at just under 40%, whilst targets for Bellway, Crest Nicholson and national volume builders Barratt, Persimmon and Taylor Wimpey, imply 23-30% upside.
The target for Barratt rises to 570p from 390p, for Bellway to 2,700p from 2,030p, for Berkeley to 4,000p from 3,000p, for Crest Nicholson to 270p from 230p, for Persimmon to 1,550p from 1,410p, for Redrow to 670p from 500p, for Taylor Wimpey to 150p from 105p and for Vistry to 1,060p from 900p.
HSBC noted the share prices of the eight housebuilders covered above are on average almost 50% lower than their pre pandemic February 2020 highs.
The bank pointed out that after recovering strongly for much of 2021, almost all this decline occurred in the first few months of 2022 when the UK government tapped the sector to pay for fire safety remediation and the market discounted a downturn against the backdrop of the rising cost of money.
HSBC continues to forecast a c20% downturn in most housebuilders’ completions in 2024 versus 2022 and a 5% fall in UK new build house prices.