viewBarratt Developments

Peel Hunt thinks Brexit uncertainty will stop house prices from rising in 2019

The City broker has slashed price targets for almost every UK housebuilder, while it has also downgraded a handful of companies in the sector

for sale signs
‘Short-term bad, long-term good,’ is the message from Peel Hunt

Peel Hunt has downgraded a handful of UK housebuilders on fears that Brexit will throw up some short-term problems for the industry.

Analysts at the City broker had expected house prices to rise by around 2% next year, but they have now cut this to zero, while they have also trimmed 2-3% off their volume assumptions.

Much of their pessimism stems from the uncertainty surrounding the UK’s exit from the European Union.

READ: Liberum upgrades three housebuilders to ‘buy’

Theresa May will present her deal to MPs tomorrow which is widely expected to be rejected. Should that happen, no one is quite sure on what the next step will be.

Will the prime minister be ousted? Will she resign? Will she be told to go back and re-negotiate?

“The short-term outlook for the UK housebuilders clearly remains volatile, mainly due to the economic uncertainty caused by the Brexit process,” read a note to clients.

“This has caused some consumers to defer house buying until there is more clarity on the outcome. While the fluid political backdrop could lead us to change our assumptions again shortly, for now our central case on growth has shifted lower and has led us to cut forecasts and target prices.”

Barratt Developments PLC (LON:BDEV) (‘add’ from ‘buy’), Berkeley Group Holdings PLC (LON:BKG) (‘add’ from ‘buy’), Crest Nicholson Holdings PLC (LON:CRST) (‘hold’ from ‘add’) and Taylor Wimpey PLC (LON:TW.) (‘hold’ from ‘add’) were all downgraded.

Downgrades and cuts galore

Of the 15 companies included in the note, only Countryside Properties PLC (LON:CSP), McCarthy & Stone PLC (LON:MCS) and Watkin Jones PLC (LON:WJG) avoided cuts to their target prices.

By contrast, Bovis Homes Group PLC (LON:BVS) saw its target slashed by a third to 825p, while Taylor Wimpey’s was cut by 36% to 140p.

Despite the gloom shrouding the sector in the short-term, Peel Hunt is more bullish about long-term prospects.

“Whether the Brexit deal passes through parliament this week or not, we continue to see the longer-term prognosis for the UK housebuilding industry as favourable,” said analysts.

“This is due to the supply/demand imbalance, associated government support and a much more liquid and benign land market.”

Quick facts: Barratt Developments

Price: 475.9 GBX

Market: LSE
Market Cap: £4.85 billion

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