Housebuilders look attractive to Canaccord, but depends on macro

There are some "extremely attractive" valuations among housebuilders but this is balanced by macroeconomic risk that are "exceptionally high", said broker Canaccord Genuity on Friday.

Canaccord's top picks for the sector were Bellway, MJ Gleeson and Persimmon, all with 'buy' recommendations, while Bovis was upgraded to 'buy' from 'hold' as "less recovery is now priced in to the shares and the dividend yield is attractive".

There was more caution around Crest Nicholson and Telford Homes, which were both downgraded to 'hold' from 'buy'.

Shrugging off pressure on margins and the slowing of the higher-end of the market in London and the South-East over the last few years, the sector has generally continued to deliver strong profits, attractive dividends and net asset growth.

With the sector's shares down 26% this year due to Brexit fears, Canaccord's view is that shares are at levels where significant risk is being priced in, "presenting a very attractive potential value opportunity" if a painful housing recession is avoided next year.

A "crude sensitivity analysis" of the sector indicates that there is a 5% fall in house prices and a 10% fall in volumes currently priced into share valuations.

If the Brexit hurdle can be overcome and the 2019 macro backdrop does not crumble too badly the analysts expect a "sharp value rally".