Broker tips: Barratt Developments, Crest Nicholson, GB Group, Big Yellow

Analysts at Berenberg upgraded construction firms Barratt Developments and Crest Nicholson from 'hold' to 'buy' on Tuesday, stating it was "challenging the rate rise narrative".

Berenberg noted that despite "a booming housing market", the sector had underperformed the UK market by 10% year-to-date as concerns about cost inflation, the stamp duty taper, uncertainty around government support, and more broad macroeconomic worries all combined to hold back valuations through the summer.

It also highlighted that the majority of the underperformance had occurred "in recent months", with inflation rising and the probability of a rate rise increasing.

However, while the German bank admitted that housing was "undeniably rate-sensitive", it thinks the impact of small rate rises will be "far more muted" than the market has priced in.

"Demand remains high, pricing continues to offset costs, balance sheets are as strong as they have ever been, valuations are cheap and forecasts achievable, so we are confident that – despite rising rates – this underperformance will reverse," said the analysts.

Despite being more confident in the sector than others, Berenberg's analysts still opted to lower their target price on Barratt Developments, the UK's largest housebuilder, from 850.0p to 810.0p and Crest Nicholson from 450.0p to 410.0p, primarily to reflect changes in taxation, with the effective rate rising due to the corporation tax increase to 25% and the introduction of the residential development land tax.

Analyst at Canaccord Genuity lowered their target price on software business GB Group from 1,000.0p to 950.0p on Tuesday following the firm's acquisition of Acuant last week.

Canaccord stated it was "in two minds" about the £547.0m acquisition from private equity, noting that the deal strengthened GB's product stack in the customer acquisition/onboarding identity verification space and added advanced platform functionality.

However, the analysts also said no matter how it looks at it, the 12.7x last twelve months sales and 63x LTM adjusted underlying earnings multiples were "very high", particularly as they sit well above the roughly 8x and 18x, respectively, paid for IDology two and a half years ago.

The Canadian bank, which reiterated its 'buy' rating on the stock, said its new estimates implied mid-single-digit earnings per share dilution, and that it believes investors will probably need "a bit of time to digest this deal".

Canaccord raised its estimates to incorporate Acuant, adding in an estimated low-20s percentage operating margin, the guided £5.0m incremental revenue and cost synergies as well as £155.0m in new debt and £387.0m in fresh equity.

"Overall, this leads us to raise our sales forecasts by 8% to 24%, while adjusted EPS are diluted by up to 6% due to the ~28% increase in share count."

Analysts at Liberum upgraded their recommendation for shares of Big Yellow from 'hold' to 'buy', labelling the storage company's latest interims as "strong".

Liberum said demand for the group's services was "robust", despite volatility on the domestic side of things and with its recent acquisition, Armadillo, trading ahead of underwrite.

Furthermore, while the analysts saw signs that occupancy was "normalising", they believed that the company's "very strong" rate of growth in rates would compound future earnings.

All told, Liberum raised its estimate for Big Yellow's fully diluted earnings per share in 2022 by approximately 11% to 52.0p.

"We think land scarcity and Big Yellow's quality London sites will drive enough capital value growth to warrant further expansion."

The analysts also hiked their target price for the group's shares from 1,550.0p to 1,720.0p.