viewBarratt Developments

Help to Buy underpinning new-build boom, says Berenberg, as it urges investors to plough into housebuilders

The secondary housing market might be flagging of late, but cheap mortgages and the Help to Buy scheme means demand for new builds from first time buyers is soaring

new house
Help-to-Buy has become increasingly popular as house prices, and thus deposits, soar

Housebuilders endured a torrid 2018, so their recent resurgence will have no doubt been welcomed by their big backers in the City.

The sector is up 14% in the first few weeks of 2019, having lost more than a quarter of its value throughout last year, as fears of a ‘no-deal’ Brexit have eased somewhat, and Berenberg thinks there is still plenty of upside left.

“Despite the re-rating, the sector continues to trade on multiples not seen since 2013 and is pricing in significant negative earnings revisions,” said analysts in a note to clients on Monday.

“Our sensitivity analysis suggests that the housebuilders are pricing in volume declines of c10% and price falls of 5% over the next three years. In our view, the fundamentals do not support this outlook and we believe [housebuilders] should re-rate as earnings expectations are met.”

READ: Analysts can't make their minds up about housebuilders

The German investment bank has a few favourite housebuilders on its list, namely Barratt Developments PLC (LON:BDEV), Bellway PLC (LON:BWY) and Taylor Wimpey PLC (LON:TW.).

“Despite what current valuations are implying, fundamentals for new-build remain positive. Mortgage lending remains stable, prices are growing in line with wages and affordability remains high.”

Berenberg point to low interest rates and the popularity of the Help to Buy scheme, which it said is “filling the deposit gap” for many prospective buyers and helping to prop up the new-build market.

“With HTB in place until at least 2023, visibility on housebuilders’ cash flows remains high and the sector continues to screen attractively, with c25% of market cap expected to be returned to shareholders over the next three years, in our view.”

The Hamburg-based bank has all three – Barratt, Bellway and Taylor Wimpey – as ‘buys’, although it has trimmed its price targets for the first two stocks.

It reckons Barratt shares are worth 650p (down from 670p), Bellway’s 3,620p (from 3,780p) and TW’s 210p.

In early deals on Monday, Barratt shares edged 0.2% higher to 537.2p, Bellway shares fell 0.7% to 2,869p, while Taylor Wimpey was broadly flat at 165.9p.

Quick facts: Barratt Developments

Price: 793.6 GBX

Market: LSE
Market Cap: £8.08 billion

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