Liberum downgrades Barratt to 'sell' as it looks at UK housebuilders

Liberum downgraded Barratt Developments to ‘sell’ as it took a look at the UK housebuilding sector.

The brokerage said it sees long-term value in some housebuilders as the valuation looks appealing and long-term fundamentals remain favourable.

It noted government support for the sector in the form of a more helpful planning system and the help to buy scheme.

In addition, it said the land market is very benign, and housebuilders are much more disciplined since the 2008 crisis, running more prudent balance sheets.

However, it noted near-term risks to share price performance such as slowing growth impacting house prices, which could put pressure on estimates and the threat of reflation without wage growth.

Liberum cut Barratt Developments to ‘sell’ from 'hold’ as it sees relatively higher risks in its lower margins compared to peers, as well as it shorter landbank which could limit the sustainability of dividend payouts.

The brokerage’s preferred stocks are buy-rated Bellway, Berkeley, Gleeson and Persimmon.

It highlighted Bellway’s compelling valuation and said volume growth should be sustained, protecting profits if prices do fall a little as expected.

Liberum maintained its ‘buy’ on Berkeley in spite of the general caution around London, as the company has secured significant forward sales to protect prices and volumes and has successfully added value to sites.

As far as Gleeson is concerned, it said the unique business model gives it industry leading margins and excellent growth prospects with limited competition.

Liberum said it likes Persimmon for its high dividend at low risk. In addition, it expressed confidence that the company will achieve the payments pledged because of management's incentive scheme.

The brokerage kept Bovis, Redrow and Taylor Wimpey at ‘hold’.

While Bovis looks cheap, Liberum has resisted the temptation to turn more bullish on the shares as its margin profile makes earnings most geared to downside risk.

As far Redrow is concerned, it said “risk aversion among investors may now limit appetite for investing in a housebuilder with a degree (even though comfortable) of debt”.

Liberum said it may be exercising too much caution leaving Taylor Wimpey at hold, especially given the high level of dividend expected.