Canadian bank RBC has taken an axe to its share price target estimates for the UK housebuilding sector, with forecasts being cut across the board due to a slowing down in the number of sites being developed.
Eight of the sector's nine members had their target prices lowered with Berkeley, which had results out today, the one exception at an unchanged 4,950p.
According to RBC, UK housing demand will recover next year helped potentially by a pre- or post-election stimulus package.
Volumes should also hold up for a while, but RBC believes slower sales rates have flattered outlet numbers.
“Sites have lasted longer than anticipated, and this has masked the fact that due to planning delays and lower levels of land spend mean fewer sites are waiting in the wings and therefore it will be more difficult than we thought to grow outlet numbers.”
“Volumes are driven by outlet numbers and sales rates. We have cut our outlet numbers, reducing the number of homes sold. “Therefore, our revenue and profit estimates fall. We have assumed current sales rates are maintained.”
Reflecting that prognosis, RBC says its estimates now are 2% below consensus for 2023; 15% below consensus for 2024 and 24% below consensus for 2025.
In share valuation terms, that translates pretty much into a 10% cut across the board.
A pick-up in sales rates would change RBC’s mind it says, but that would require falling mortgage rates, increased mortgage supply, rising wages, further personal or property tax cuts and “the arrival of son or daughter of Help to Buy”.
Of the companies covered, Bellway (new tp 3,050p), Gleeson (tp 550p) and Redrow (tp 750p) are the ‘outperforms’.
Vistry (tp 750p) and Crest Nicholson (tp 175p) are ‘underperforms’ are rated ‘underperform’ with the others either expected to move with the sector.