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Berkeley upgraded to ‘buy’ by HSBC over “stable” housing outlook

Analysts at the bank hiked the price target to 6,620p from 4,540p and selected Barratt Developments, Redrow, Crest Nicholson and Bellway as top picks

Berkeley Group - Berkeley upgraded to ‘buy’ by HSBC over “stable” outlook
A Berkeley development in London

Berkeley Group Holdings PLC (LON:BKG) rose on Wednesday after HSBC upgraded the stock to ‘buy’ from ‘hold’ as it expects the housing market to see better times.

Analysts at the bank hiked the price target to 6,620p from 4,540p.

READ: Berkeley Group increases its cash payout plan by £455mln as regeneration sites come onstream

“The current share price, in our view, is not fully pricing-in the improvement in near-term London housing market as the well wider south-east housing market and long-term prospects,” analysts commented.

The FTSE 100-listed housebuilder takes the smallest hit from the ‘Help to Buy’ scheme among its peers, as it comprised only 8% of completions in the year to last April and 12% in the first half of 2020.

Berkeley’s strategy of land-buying and regeneration schemes is expected to yield “stable” earnings and a return on capital of 26-27% over the next four years.

Analysts’ top picks

As post-election clarity lifts the market, analysts at HSBC set their preference on players focused on the south-east market.

Barratt Developments PLC’s (LON:BDEV) target price was upped to 1,070p from 750p thanks to its volume growth strategy and low exposure to the ‘Help to Buy’ scheme.

Redrow plc (LON:RDW) got a similar bump, to 1,100p from 770p, while Crest Nicholson PLC (LON:CRST) was trimmed to 660p from 690p as they both are trading at a sector discount but have upside.

Finally, Bellway PLC (LON:BWY) target price was changed to 5,470p from 4,300p as it offers “one of the strongest near-term growth” in the sector.

Recommendations for all four were maintained at ‘buy’.

Shares in Berkeley rose 2% to 5,846p on Wednesday at noon.

Quick facts: Berkeley Group

Price: 3500 GBX

LSE:BKG
Market: LSE
Market Cap: £4.42 billion
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