Cannacord Genuity hails McCarthy&Stone's focus on returns, product appeal

Analysts at Cannacord Genuity hiked their target price on shares of McCarthy&Stone, hailing the company's decision to shift its focus from growth to maximising returns and ongoing efforts to adjust its product offering.

The day before, the retirement homebuilder had unveiled a new 15% target for both its operating margins and return on capital employed.

"As well as taking out costs, management is clearly adjusting its customer proposition to increase the appeal of its product offering. For us, its success in this area is the more significant issue for the longer term investment case - clearly demographic trends support the business model but the right customer proposition is critical to attract the demand opportunity from an ageing demographic," analyst Aynsley Lammin said.

"With clarity over the financial targets and an improving balance sheet, we believe that the shares should enjoy something of a re-rating."

In-line with the above, Cannacord revised its target price on the shares from 118.0p to 140.0p.

The Canadian broker was also expecting an announcement soon from government on FRI income, which should eliminate a source of uncertainty.

On the flip-side, Lammin added that: "a sluggish secondary market and adjustment to the new customer proposition are likely to continue to prove challenging for the foreseeable future."