If you think you have missed the boat on house builders, think again, says Deutsche Bank, which has upgraded its profit forecasts for Berkeley Group Holdings PLC (LON:BKG).
Berkeley’s shares are up 50% over the last year at 3,739p, but Deutsche Bank (DB) thinks they have a bit further to do; it has set a price target of 3,908p, based on a blend of net tangible asset value (NTAV) per share and what the share price would need to rise to for the group’s 5.0% dividend yield to match the sector’s average.
The yield is attractive, DB believes, and its cash flow analysis suggests the house builder’s generous special dividend programme could end with the company sitting on top of around £800mln of net cash, which is equivalent to 555p a share.
Were the group to return its net cash of 555p over the four years from 2018 to 2021 it would add an additional 3.8 percentage points to the yield.
Including the price/earnings ratio into the blend, or including the potential upside to dividends, “suggests a more meaningful upside to £40.67” DB’s team said.
“Sentiment towards the London housing market, although cautious, is improving and the Berkeley share price has rallied in recent months driven by upside to company guidance and bounce-back in reservations,” DB noted.
The German bank has increased its profit before tax forecasts after doing an in-depth analysis of the group’s London sites.
The forecast for the current year rises 14.5%, while for the next two years it rises by 7-8%.
Shares in Berkeley were up 1.1% at 3,735p in a falling market on Thursday morning.