Berenberg slightly lowers target price on Barratt Developments

Analysts at Berenberg slightly lowered their target price on construction firm Barratt Developments from 810.0p to 790.0p but said it saw "no signs of a slowdown".

Berenberg said despite headlines, demand remained "exceptionally strong", as Barratt Developments' net private sales rate was 0.93x between 1 January and 1 May, 12% higher than last year and 18% above 2019.

As per seasonal trends, sales increased between February and May by roughly 3%, slightly below the period's historical improvement of around 5%, implying the rate was close to 1x in March and April.

Likewise, Berenberg also noted that Barratt's private order book stood at 8,117 units, up 25% year-on-year and equating to approximately £3.0bn in value. Prices for private reservations increased by 9% year-on-year, and management stated that there had not been any uptick in down valuations.

However, the German bank did note that likely strong gross margins in the second half will be offset by an increase in operating expenses following a group-wide salary review and said average outlets would probably only be marginally higher against 2021, compared to previous guidance ofr 3% growth.

"Barratt shares have underperformed year-to-date, down 35% compared to circa 28% for the sector, and now offer a circa 10% free cash flow yield by full-year 2023. Our price target modestly falls to reflect the reduced book value per share; we reiterate our 'buy' recommendation," said Berenberg.

Reporting by Iain Gilbert at sharecast.com