Berkeley Group Holdings PLC (LSE:BKG) shares were lifted by an upgrade to 'buy' from UBS on Monday morning, with the Swiss bank seeing the blue-chip housebuilder's valuation now as more compelling following a 14% decline over the past year.
Analyst Marcus Cole says the FTSE 100 housebuilder offers "high short-term earnings visibility", sector-leading returns through the cycle and "an underappreciated opportunity to generate value" from its build-to-rent (BTR) portfolio.
Following the subsidence of the shares, they now trade at 1.1 times tangible net asset value, compared to a long-term average of 1.5 times.
"We think this offers protection in the short-term, especially given high earnings visibility," said Cole, with the company guiding to a total of at least £975 million of pre-tax profits over the next two years, with the valuation discounting "a too bearish scenario".
Another way of looking at it, he said, is that the current share price is around 15% below his conservative liquidation value for the company.
"We think part of the reason for the valuation de-rating is the profit outlook for the next several years is relatively subdued, with Berkeley expecting modest profit decline in FY26," said the analyst, with Berkeley also more than halving its annual capital return commitments to £128 million.
"That said, we think there is material upside in the mid-term."
He is more optimistic than the company on profits, forecasting that EBIT will stay around £500 million for each of the next four years and then grow gradually to £600 million over the medium-term.
"We think Berkeley will end up with meaningful excess cash from 2029 onwards and it is also likely that the BTR portfolio ultimately is monetised, which offers the potential of meaningful cash generation and potential for further shareholder returns over the medium-term."
Alongside its new rating, UBS has a 4,965p share price target, cut 8% to reflect lowered EPS forecasts and discounted cash flow assumptions.