Taylor Wimpey plc (LON:TW. shares received a boost today after Barclays upgraded its rating on the housebuilder to ‘overweight’ from ‘equal weight’, saying the fundamentals for the UK housing market remain strong.
Barclays said Taylor Wimpey has a strong balance sheet and a high dividend yield of about 8%. The bank raised its target price on the stock to 208p from 195p.
Shares rose 2.03% to 180.90p in afternoon trading.
Taking a look at the wider sector, Barclays said the UK housing market continues to be supported record low interest rates, government funding and a decline in the unemployment rate.
Barclays also believes fears of an impact from an interest rates hike are “overblown”. The Bank of England policymakers have diverged in recent comments on whether to raise interest rates.
Barclays said while rate rises are “inevitable” and likely negative for sentiment, it thinks a number of factors should “lessen the pain”.
“First, for the majority (c60%) of homeowners who are on fixed rate deals, the transmission mechanism is not immediate, lowering the shock.
“Second, arrears/repossessions are currently at low levels, a helpful starting point.
Third, we calculate that rate rises of more than 150 basis points are needed to breach long-term affordability ratios.
“And finally, we believe ‘checks and balances’ in the system (particularly Financial Policy Committee restrictions on income multiples across lenders’ books) lower risks.”
Crest Nicholson top pick, says Barclays
Barclays said its “top pick” of the sector was Crest Nicholson Holdings plc (LON:CRST), repeating an ‘overweight’ rating and lifting the target price to 691p from 628p.
Like Taylor Wimpey, Crest has an attractive dividend yield of about 7% and a robust balance sheet, Barclays said. The firm has also sites in affluent and desirable locations with strong transport links.
“We believe this is the cheapest house builder in the sector and retain the stock as our Top Pick in our UK house building universe,” Barclays said.
Shares edged up 0.19% to 518.0p in afternoon trading.
Barclays downgrades Countryside Properties and McCarthy & Stone
However, Barclays downgraded fellow housebuilder Countryside Properties plc (LON:CSP) to ‘equal weight’ from ‘overweight’ based on valuation grounds following a 36% increase in the share price in the past three months. The bank raised the target price to 359p from 353p.
Shares fell 0.29% to 345.90p.
Barclays also downgraded McCarthy & Stone PLC (LON:MCS) to ‘underweight’ from ‘equal weight’ and cut the target price to 160p from 182p, citing the retirement housebuilder’s reliance on the second-hand market where conditions are “less buoyant”.
“We expect conditions to remain challenging in the near term, though we acknowledge that the company is well placed to deliver a better result in the event they improve, given the pipeline it has in place,” it added.
Shares dipped 0.84% to 165.60p.
UK house price growth slows on Brexit uncertainy, RICS data shows
The bank’s note about housebuilders came as poll of surveyors showed UK house price growth had fallen to its lowest level since the aftermath of the Brexit vote as political uncertainty weighed on the market.
The Royal Institution of Chartered Surveyors (RICS) said a net balance of 7% of firms questioned across the UK saw an increase rather than fall in house prices in June, down from a balance of 17% in May and the lowest reading since July 2016.