Barratt Redrow PLC (LSE:BTRW) and Bellway PLC (LSE:BWY) shares rose on Friday after Berenberg upgraded both housebuilders to 'buy', arguing that strong balance sheets and generous shareholder returns offer an attractive opportunity despite a worsening outlook for the sector.
The broker cut its average profit before tax forecasts for the sector by 15% for 2027, citing elevated mortgage rates, higher energy costs and pressure on margins.
"Our market view and forecasts reflect a pretty downbeat outlook. However, within this sombre framework we think there are interesting opportunities emerging when we consider three factors: valuation, balance sheet and capital returns," the Berenberg analysts said.
"Indeed, it is these three factors that underpin the upgrades to buy in this note of Barratt Redrow and Bellway."
Berenberg's target price for Barratt Redrow was cut to 348p from 414p but with the positive view reflected the fact that the shares trade for just 0.6 times tangible net asset value and around 10 times earnings based on its forecasts.
The broker expects the company to end the 2026 financial year with around £600 million of net cash and estimated total capital returns of 8% a year.
For Bellway, Berenberg raised its target price to 2,400p from 2,100p despite trimming profit forecasts for 2027 and 2028 by 5%.
The analysts said the company trades at the low end of its historic valuation range and that its £150 million annual buyback amounts to about 7% of its market value.
Berenberg also downgraded Berkeley Group to 'hold' from 'buy', saying its shares have materially outperformed the wider sector over the past year.
