Berkeley Group Holdings PLC (LSE:BKG) has been upgraded by analysts at RBC Capital Markets for the second time in two days, as they argue the housebuilder’s recent sell-off has gone too far despite a tougher outlook ahead.
The broker lifted its rating to 'outperform' on Thursday, a day after going from 'underperform' to 'sector perform', on the back of a strategy update from the FTSE 100 group, where it said it would halt land purchases and "tightly sequencing" construction activity.
RBC felt it was taking the right approach in a weakening market by dropping volumes rather than prices, even though Berkeley said the strategy comes at a cost to profits.
"If you have a high quality asset base, which Berkeley does, it is always better to cut volume to preserve value than to cut prices and destroy value."
The group said it expects to generate "above" £1.4 billion of profit before tax over the four years to 2030, working out at an average of £350 million of PBT a year.
As a result, RBC has cut its forecasts for home completions by 8% in the 2027 financial year and by 21% in 2028, with profit before tax estimates lowered by 14% and 32% respectively.
The reason for Berkeley's decision was deteriorating market conditions, with RBC envisioning lower sales volumes and softer pricing expected in the coming years, alongside elevated build cost inflation.
Yet Berkeley’s model, focused on higher-value homes and supported by a long forward order book, is seen as "the most resilient" of all the housebuilders in terms of a market downturn.
Its asset base and exposure to an undersupplied housing market are cited as key supports.
The broker said the shares now look "compelling" after falling almost 30% over the past month, currently valuing the company at under £3 billion, with a "trough multiple" of its asset base.
RBC's price target is 3,850p, with the shares last closing at just over 3,100p, up a few pennies by late morning at 3,108p.