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House price uncertainty is big worry for housebuilders, says JPMorgan

A 10% drop in house prices could translate to 34% downside to earnings, the analysts warned

Berkeley Group -

House prices are “the big unknown” for housebuilding companies, said analysts at JPMorgan Cazenove after the sector upped tools and restarted work on construction sites this month.  

The UK Housebuilding sector’s shares have recovered from their lows last month as the companies have resumed building and sales activity, but have still underperformed the FTSE 100 by 13 percentage points so far this year. 

A 10% drop in house prices could translate to 34% downside to earnings, the analysts warned in a note to clients on Tuesday.

Having previously forecast a 30% peak-to-trough drop in housing completions, the JPM number crunchers said this remained a sensible assumption at this stage, though they tweaked forecasts to reflect a slightly better recovery profile, with 2021 completions now seen as 15% below pre-coronavirius levels.

“We believe the balance of risks still remains even and continue to prefer stocks with solid returns and strong balance sheet,” the analysts said.

This meant Berkeley Group PLC (LON:BKG) and Persimmon PLC (LON:PSN), with both kept on ‘overweight’ ratings, with Berkeley’s price target unchanged and Persimmon’s lifted to 2,580p from 2,270p.

Elsewhere, the resumption activities and shifts in forecasts led to several target changes, with the most sizeable being for Vistry Group PLC (LON:VTY), where the price target was hiked to 710p from 510p, though it remained rated ‘underweight’, and Taylor Wimpey PLC (LON:TW.), which was lifted to 140p from 110p but kept at ‘neutral’.

Bellway PLC’s (LON:BWY) target was nudged up to 2,940p from 2,740p, Barratt Developments PLC (LON:BDEV) was upped to 500p from 420p, Redrow PLC (LON:RDW) to 510p from 420p and Crest Nicholson PLC (LON:CRST) to 220p from 180p, though none of their ratings were changed.

Quick facts: Berkeley Group

Price: 4509 GBX

LSE:BKG
Market: LSE
Market Cap: £5.66 billion
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