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Jefferies thinks 'All Roads Lead to New-build' as it repeats bullish view on UK housebuilders

Published: 09:52 26 Jun 2017 BST

Housebuilding
Jefferies said their top picks among the housebuilders are Taylor Wimpey, Berkeley Group, and Bovis Homes

Jefferies International has reiterated a bullish view on the UK housebuilders, raising the majority of target prices across their sector coverage in a note on UK Property entitled ‘All Roads Lead to New-Build’.

The US brokers’ analysts highlighted four reasons for their preference for the builders noting, firstly. that not enough homes are being built in the UK, meaning demand outweighs supply.

They added that the government’s ‘Help to Buy’ incentive scheme “also provides a material competitive advantage to the new-build sector over its main competitor, the existing homes market.”

The analysts said stock shortages in the existing homes market divert further demand to the new-build market.

And finally, they added, the sector has “very attractive and robust cashflows, which underpin both dividend estimates and share prices, in our view.”

The Jefferies analysts said their top picks among the housebuilders are Taylor Wimpey PLC (LON:TW.), with its high yield highly underpinned;  Berkeley Group PKC (LON:BKG), as London housing market fears are overplayed, in their view; and Bovis Homes PLC (LON:BVS), which is at an attractive entry point for a management turnaround story.

Taylor Wimpey and Bovis were among the stocks which saw their target prices hiked in the note, with the only cut in target coming for smaller player Galliford Try plc (LON:GFRD).

Bricks needed

After the housebuilders, they said their preferred UK Property plays would be building products companies, with brick manufacturers Forterra PLC (LON:FORT) and Ibstock Plc (LON:IBST) their top picks.

Deutsche Bank’s analysts were also upbeat on those two firms in a note on UK bricks today, raising price targets for both Forterra and Ibstock, and reiterating ‘buy’ ratings.

Jefferies analysts also highlighted UK property portals, such as ZPG PLC (LON:ZPG) which they said “remain the most resilient stocks we cover.”

They added: “Being one step removed from house prices and housing transactions, they have an enviable track record with respect to weathering economic storms.”

The analysts concluded: “Weaker secondary market transactions and falling real wages are likely to depress demand in the merchanting space, while the estate agents are both most exposed to lower transactions and face competitive threats from new business models.”

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