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Galliford Try shares rise as Liberum initiates stock at 'buy' with positive outlook on housing market

Published: 09:49 19 Jul 2017 BST

House
The UK housing sector is likely to withstand political uncertainty, Liberum says

Galliford Try plc (LON:GFRD) shares received a boost as Liberum initiated coverage of the UK housebuilder with a ‘buy’ rating and a target price of 1,460p.

Liberum said Galliford was one of its top picks in the sector, along with Bellway plc (LON:BWY), Gleeson and Redrow plc (LON:RDW).

Shares in Galliford rose 2.92% to 1,306p in morning trading.

Galliford offers a “better upside for a recovery story” than Bovis Homes Group (LON:BVS), Liberum said.

It cut its rating on Bovis to ‘hold’ from ‘buy’ and raised its target price to 965p from 940p, saying it is its least preferred stock on valuation grounds.

Earlier this month Galliford, which pulled out of a £1.2bn attempt to buy Bovis in April, said full year profits would reach the top end of analysts’ forecasts following a strong performance across all of its businesses.

House price inflation set to slow, says Liberum

On the wider sector, Liberum said it expects house price inflation to slow but stay in positive territory as the sector has shown resilience amid Brexit uncertainty.

The broker raised target prices by 5% on average and raised its earnings per share forecasts by 7% for fiscal year 2018.

“We see value in the sector as housebuilders can keep showing surprising resilience and valuation is attractive,” Liberum said.

Liberum’s note on the sector came after official data yesterday showed that UK house prices rose 4.7% in the year to May to an average of £220,713, compared to the previous month’s  5.3% annual rate of growth.

On Monday, Rightmove revealed that asking prices for properties sold on its website rose 2.8% year-on-year in July, compared to 1.8% in June.

Last week a survey from the Royal Institute of Chartered Surveyors showed house price growth slowed in June. The net balance of surveyors predicting price rises fell to +7% in June, down from +17% in May.

Housing market supported by low interest rates, Help to Buy

Liberum said while UK house prices have eased on political and economic uncertainty, the market has continued to see growth due to low borrowing costs, the Help to Buy government scheme and a shortage of housing.

Risks to housebuilders include interest rate rises, political concerns, unemployment and rising building costs, Liberum said.

Liberum believes most UK home buyers an can “ignore” the uncertainty surrounding the impact of Brexit on the economy and that interest rates are unlikely to increase enough to affect housing affordability. However, the biggest risks are any changes to employment and wages. “Consumers are only likely to lose their appetite for buying houses if unemployment were to rise, in our view,” it said.

The Help to Buy scheme also needs to be extended after 2021, Liberum said, adding that it thinks this will likely be the case. 

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