Deutsche Bank upgrades Taylor Wimpey, downgrades Vistry

Deutsche Bank said on Tuesday that it remains "constructive" towards the UK housebuilding sector as it changed its ratings on three London-listed names.

The bank downgraded Vistry to ‘sell’ from ‘hold’ following the "parabolic" rally in the shares, which are up 70% since early November.

"We continue to believe that relatively high gearing (we expect this to be just under 40%, including land creditors, at the end of this year) raises risks," it said. "Our rating change comes despite a significant increase in our target price from 610p to 807p."

Deutsche downgraded Crest Nicholson to ‘hold’ from ‘buy’, also following a period of strong outperformance, reversing its early September upgrade. DB lifted its price target on the stock to 325p from 250p.

Finally, the bank bumped up Taylor Wimpey to ‘buy’ from ‘hold’ and boosted the price target to 179p from 147p.

"This follows a much improved trading update, where current and next year guidance was raised significantly," it said.

Deutsche said that early 2021 is strongly underpinned by forward order books, but cautioned that risks remain on the horizon. Its top picks in the housebuilding sector are Redrow in mid caps and Barratt Development in large caps.

As far as Redrow is concerned, DB said it sees clear upside to the current share price. "We believe Redrow remains incurably cheap, for no good reason, and well served by its focus on the more aspirational segment of the market," it said.

The bank added that Redrow’s recent withdrawal from London - apart from its existing schemes, notably Colindale Gardens - will allow it to focus on its regional footprint.

For Barratt, it highlighted the forthcoming trading update on 4th January and buoyant market conditions reported by others. "Our 2021E pre-tax profit forecast of £699m for the year to June 2021 remains towards the top end of the range of market expectations," the bank said.