Deutsche Bank is a fan of Taylor Wimpey PLC (LON:TW) and Barratt Developments PLC (LON:BDEV), although its income rather than growth potential that has caught the eye of the German bank’s number crunchers.
The former is rated ‘buy’ up 244p a share, with the analysts flagging up the company’s strong cash flow and significant strategic land bank as positives.
But it is the pay-out that stands out, Deutsche said. “It is this FTSE100-leading dividend yield of around eight per cent, we see as a key driver of the investment case and we believe should be increasingly recognised in the valuation as cash flow generation continues to more than support annual payments.”
Deutsche provided coverage of the sector in four separate notes previewing results later this month.
In the Barratt curtain-raiser the bank admits there are risks to its ‘buy’ case – namely its London exposure.
However, it says the valuation of the stock at just 1.2-times price to net tangible asset value is “too cheap”. Barratt is worth 605p, 85p more than the current share price, the note added.
At the same time the dividend yield of 6.5% is too high to ignore. There is also the potential of a return of excess cash in some sort of special distribution, Deutsche’s brokerage arm pointed out.
The recent profit warning and exit of the chief executive at sub-scale Bovis Homes Group PLC (LON:BVS) are two reasons why the stock is rated ‘hold’.
That said, it could be taken over with a leading shareholder publically pushing for Bovis to be sold off.
The “potential upside” from a capital return programme at Persimmon PLC (LON:PSN) still isn’t enough to tempt Deutsche off the fence.
Its valuation is the highest in the sector, it pointed out in a note repeating its ‘hold’ recommendation and 2,069p price target.
Dates for the diary
Bovis - Full-year results Feb 20
Barratt - First-half results Feb 22
Persimmon - Full-year results Feb 27
Taylor Wimpey - Full-year results Feb 28