JP Morgan sandbagged the housebuilders today as in addition to the cladding issue the US bank said every 5% of raw material inflation impacts earnings by 5% and needs house prices to rise by 1% to offset.
As a result, the US bank cuts its 2023 earnings targets across the sector by 5%.
On cladding, JPM added the sector is likely to remain under a cloud until the situation over remediation is clarified.
The sector has underperformed the FTSE250 by 12% so far in 2022, which the bank attributes to the cladding uncertainty.
Government estimates are that to clear up the problem will cost a total of around £9bn, though the builders’ trade body suggests it is lower at £7bn.
“We understand that the listed companies are responsible for just under half of the high-rise buildings built, implying a proportionate contribution of £3.2bn,” said the note.
Allowing for the developers’ tax already announced, that would imply around £200mn still to be found.
The key contention is over orphaned buildings, says JP Morgan, which in a worst-case scenario might see an incremental liability of £6bn.
“The impact per company still remains unclear, as not all companies have been forthcoming about the details on the total provisions required and how the liability related to orphaned buildings will be apportioned.
“We continue to view Persimmon as the relative beneficiary, with the group historically under-represented in the mid-high rise buildings.”
Shares in Persimmon eased 3.4% to 2,117p along with rest of its peer group.