viewMJ Gleeson

Housebuilders diverge as analysts look for election winners

Shares in Gleeson were up 5% on Wednesday morning as Liberum picked it out as one of its top smaller housebuilders

Persimmon homes
Valuations are "more compelling" among smaller builders

Housebuilding stocks were a mixed bag on Wednesday as analysts looked at the possible outcomes from the general election on the sector.

Liberum analysts noted that history as a guide would point to the housing market slowing in the run-up to the election, “but if the opinion polls and bookmakers are correct, the housebuilders shares could outperform if a Conservative victory is the outcome”.

While the housing market slowed in five of the last six elections, these polls were all held in summer months, so it is by no means guaranteed this will translate to a winter election.

“Housebuilders’ shares performed well in the wake of the 2010 and 2017 elections, and this could be repeated, especially if a winning Conservative party offered fiscal expansion,” Liberum said.

“All of the housebuilders would outperform on a Conservative election win, in our view, but we think the smaller builders would perform better as risk appetite comes back and as their valuations are more appealing.” 

Of the smaller builders, the analysts prefer MJ Gleeson Plc (LON:GLE) and Bellway PLC (LON:BWY), with Galliford Try PLC (LON:GFRD) as a "special situation" and Persimmon PLC (LON:PSN) as the preferred large-cap builder.

Shares in Gleeson were up 5% to 828p on Wednesday morning, while Bellway and Galliford were flat, and Persimmon was down more than 1% to 2,297p.

Over at Shore Capital, analysts told clients to take profits from the sector after it has recently undergone “wild gyrations” as optimism grew that a no-deal Brexit had been avoided, that Brexit will deliver a “substantial economic dividend” and a 6 November budget would slash Stamp Duty and set the housing market alight.

“Now, however, we have replaced what appeared to be confidence with fresh doubt and uncertainty and…we believe that uncertainty is a killer for the housing market.

“As there is a great deal of uncertainty about the outcome on December 12th and the two parties that might occupy No. 10 will have polar opposite agendas, we believe that many buyers will now adopt a wait-and-see position.”

Looking at recent stand-out sector shares, Barratt Developments PLC (LON:BDEV) and Berkeley Group Holdings PLC (LON:BKG), ShoreCap rates the former a 'sell' and the latter a 'hold' but suggested investors look to take profits from both.

The waters have been muddied at Bovis Homes Group PLC (LON:BVS), which is rated 'sell' and has also been strong, as it is seeking to buy the Linden Homes business from Galliford.

ShoreCap concluded: "The sector typically moves en masse so if we are to see a notch down it is likely to be universal and if looking at stock picks, almost anything in the sector will suffice.

"We have been suggesting that the current sector valuations have been over-pricing optimism and under-pricing risk for some time and we stand by that view.

"The sector already faced the risk of earnings shocks and surprises from the loss of forward momentum in house prices, in our view, but the risks have now been heightened."

Quick facts: MJ Gleeson

Price: 624 GBX

Market: LSE
Market Cap: £363.52 m

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