Housebuilders found gains today after the latest survey from Britain's largest lender, the Halifax showed a jump in UK house prices last month, while analysts at Credit Suisse also gave a boost to Barratt Developments PLC (LON:BDEV) with an upgrade in rating.
House prices across the UK rose by an average of 4% in the year to September, according to Halifax, a pick-up from the annualised growth of 2.6% seen in August. Halifax said the average price of a house or flat in the UK has risen to a new peak of £225,109.
READ: Housebuilders surge on news of extension to Help to Buy scheme
Shares in housebuilders – which got a boost earlier this week after prime minister Theresa May announced an extension to the Help to Buy progamme which aids first time buyers – were higher in morning trading, with Bovis Homes PLC (LON:BVS) adding 1.4%, or 16p at 1,163p, while blue chip Persimmon PLC (LON:PSN) gained 0.2%, or 4p at 2,710p.
Another FTSE 100-listed builder, Barratt rose 0.9%, or 5.5p to 652.0p helped by the upgrade to ‘outperform’ from ‘neutral’ by Credit Suisse, which also raised its target price for the stock to 702p from 578p.
Margin focus leads to Barratt upgrade
In a note to clients, Credit Suisse’s analysts said: “We believe Barratt's renewed focus on EBIT margin will drive an 110bps increase in margins between FY17a-20e. Reflecting this, we raise our FY18 and FY19 EPS by 4% and 3%. Our FY18-20 EPS forecasts are 11% above consensus, on avg.”
“Since 2009, Barratt's EBIT margin and RoE have lagged the sector by an average 470bps and 480bps, respectively.”
The analysts noted that, to address this, in the first half of this year, Barratt announced a series of four initiatives specifically aimed at driving EBIT margin accretion.
They commented: “The high end London market had previously created a headwind to gross margin progression. We believe this headwind is diminishing as the Group de-risks its exposure to central London and focuses on zones 3-6. “
The analysts concluded that Barratt is the cheapest housebuilder under their coverage, but said they believe that, as the group “executes on its margin initiatives, the improving RoE will drive a multiple re-rating up towards the sector average.”