The housebuilding sector offers “favourable” risk-reward, UBS said on Friday, even as it cut its target prices for the sector by 25-58%.
While there is “very limited” visibility on profits in the short-term, depending on the duration of the coronavirus lockdown and how the economy reacts, sector valuations has de-rated to a level equal to tangible net assets compared to around 1.9 times before the Covid-19 outbreak.
With balance sheets looking strong, to varying degrees, and “even with no revenues for three months”, UBS analysts reckon the sector has sufficient liquidity.
Among stock rated ‘buy’, Redrow (LON:RDW) was ranked top in terms of offering the most upside from its current share price, as the analysts cut the price target from 1,040p to 690p, versus a share price that closes overnight at 402p. Including its promised dividends it offered a total shareholder return of 72%.
Ranked second and third in terms of upside, Bellway's (LON:BWY) target was cut from 4,620p to 3,190p versus its last closing price at 2,202p; while Berkeley Group (LON:BKG) was cut from 6,275p to 4,700p versus a close price of 3,695p.
Next in the ‘buy’ came Barratt Developments (LON:BDEV) as it was cut from 880p to 625p versus a closing price of 478p; then Taylor Wimpey (LON”TW.) was cut from 230p to 165p versus the closing price of 132p.
McCarthy & Stone (LON:MCS) remained at ‘sell’ and with the target slashed to 55p from 132p.