Bellway, Redrow and some other housebuilders still offer value, say JPMorgan and Citi

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UK housebuilders continue to offer value despite wider macro risks to the sector and a surge in share prices in recent months, according to analysts at the major investment banks.


The sector has underperformed the market by eight percentage points in 2020, JPMorgan Cazenove noted, following the lockdown-linked work stoppages earlier in the year and continued uncertainty on Brexit.


“We take an increasingly positive stance on the sector’s outlook as the concerns into next year are well flagged and shift the skew of our preference from quality to value as we see an improved risk-reward,” analysts at JPMorgan said.


Over at Citigroup, they said “we continue to see value in the UK housebuilders”, predicting at least 14% growth in sector net assets on an annualised basis “including capital returns over the next two years and potential for further upgrades in an improving labour market”.


Currently trades on a price/book ratio of around 1.4 times for the 2021 calendar year, slightly below the long-term average of nearer 1.5 times, Citi said 1.67 was where it saw their true worth.


“We believe the laggards of 2020 have a strong potential to catch up next year,” the Citi analysts said, with Bellway PLC (LON:BWY), Barratt Developments PLC (LON:BDEV) and Taylor Wimpey PLC (LON:TW.) all rated ‘buy’ and the preferred picks.


Persimmon PLC (LON:PSN), rated ‘buy’, and Berkeley Group Holdings PLC (LON:BKG), rated ‘neutral’, have been relative outperformers in 2020 and Citi believes clarity on a Brexit deal and rapid rollout of vaccine could drive strong dividends for both.


JPMorgan upgraded Redrow PLC (LON:RDW) to ‘overweight’ as its near-term pick for the ‘value trade’, while sticking with Persimmon PLC (LON:PSN) as a medium-term pick.


After a strong run, the JPM analysts said Berkeley Group Holdings PLC (LON:BKG) remained a quality name but downgraded their recommendation to ‘neutral’ with the share price target cut to 4,900p from 5,200p. A negative stance was also maintained on Crest Nicholson Holdings PLC (LON:CRST).


“Heading into 2021, we are now shifting the skew of our recommendations toward value after strong outperformance of the quality names in 2020.”


Headwinds are seen for 2021, including unemployment concerns, the end of the stamp duty holiday in March and the Brexit unknown, but the JPM analysts said these are “well flagged and we continue to view the structural backdrop as positive, supported by an undersupplied market and affordability levels consistent with the long-term average”.

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