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Help to buy, or charter to sell? Brokers split on govt aid for the housing market

There are two diametrically opposed views on the potential impact of the government’s help to buy initiative for the housing market, prompting both upgrades and downgrades of stocks affected. Heavyweight Bank of America Merrill Lynch sees the programme as a “silver bullet”, but reseach house Jefferies disagrees. 

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There are two diametrically opposed views on the potential impact of the government’s help to buy initiative for the housing market, prompting both upgrades and downgrades of stocks affected.

Heavyweight Bank of America Merrill Lynch sees the programme as a “silver bullet” for the builders that will not only kick start activity on the ground, but may also encourage banks and building societies to re-examine their currently miserly lending policies.

Research house Jefferies, meanwhile, dubs aid package ‘help to sell’ suggesting it won’t have the impact intended. 

It must be said its analysis focuses on the predicted knock-on effects for the builders’ merchants, rather than the house builders.

“It is received wisdom that merchants’ performance is inextricably linked to housing transactions and that they will be a direct beneficiary of a help to buy,” said analyst Sam Cullen.

“We disagree, believing that HTB will not increase transactions in areas where home improvements are attractive, hence the sell. 

“In order for the shares across the sector to trade at long run average multiples we need to see upgrades of between 15% and 72%; we view this as unlikely.”

Jefferies pegs back its recommendations for Howden (LON:HWDN) and Travis Perkins (LON:TPK) to ‘underperform’ from ‘hold’ and continues to rate Wolseley (LON:WOS) ‘underperform’.

For Bank of America Merrill Lynch help to buy is just one of three factors likely to give the housing sector a kick in the right direction.

The return of house price inflation could also provide a lift, the bank contends, while a loosening of supply in the mortgage market could offer a further boost.

Its top picks among the builders are Redrow (LON:RDW), Berkeley Group (LON:BKG) and Taylor Wimpey (LON:TW) – with the last of trio upgraded to ‘buy’ from ‘neutral’.

It has “slightly tempered” its positive calls on Barratt Developments (LON:BDEV) and Bovis (LON:BVS), which are pegged back to ‘neutral’ from ‘buy’.

“The sector has produced a strong performance over the last 12 months and has reached a point where asset based valuations are giving way to earnings based metrics,” said analyst Andy Murphy in a note to clients. 

“We retain our longer term view that the fundamentals are in place for continued outperformance and maintain buy ratings on Persimmon, Berkeley and Redrow, and have upgraded Taylor Wimpey

“We have slightly tempered our bullish stance on both Barratt Developments and Bovis Homes as the stocks have performed well and we can see better value elsewhere in the sector.”


Quick facts: Barratt Developments

Price: 668.6 GBX

LSE:BDEV
Market: LSE
Market Cap: £6.81 billion
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