Analysts at Liberum Capital are more cautious on UK housebuilders even though they have raised forecasts across the sector to reflect increased house price inflation estimates.
In a note to clients, the analysts said they have raised earnings per share forecasts for the housebuilders by around 10% for 2017 and 15% for 2018 as its house price inflation forecasts rise to +3% in 2017 and +1% in 2018, reflecting improved UK economic forecasts.
But they said, despite this, they are more cautious on the sector in spite of hiking target prices for most of the players due to recent share price gains.
The analysts said: “We prefer the growers who can offset expected margin pressure with volume growth, to the returners.”
The analysts said their three preferred stocks are Bellway PLC (LON:BWY), MJ Gleeson PLC (LON:GLE) and Redrow plc (LON:RDW), which are all “growers”.
They added: “As we expect house price inflation to slow materially in 2018 to 1%, the growers have the best chance of keeping profit growth going, in spite of likely margin pressure.”
The analysts have downgraded their rating for both Persimmon PLC (LON:PSN) and Berkeley Group PLC (LON:BKG) to ‘hold’ from ‘buy’ on valuation grounds.
They repeated a ‘sell’ stance on Barratt Developments PLC (LON:BDEV) as it remains their “least preferred stock as its short landbank makes its dividend less sustainable under stress than for the other returners.”