UBS ups targets for swathe of UK homebuilders

UBS marked up its target prices for the majority of UK-listed homebuilders in the wake of the general elections.

According to the Swiss broker, the election result would reduce macro uncertainty and drive more meaningful house price inflation over the short-term.

The longer-term fundamentals remained "solid" too, the Swiss broker said, even as it cautioned that government policy "would be a key area to watch".

More specifically, UBS raised its forecasts for average selling prices between 2020-23 by 1.0-2.0%, those for margins by 30-50.0 basis points and those for return on capital employed by an average of approximately 100.0 basis points.

It also lowered its estimate for the sector's weighted average cost of capital by 100.0 basis points to 8.0%.

The broker raised its target price for Redrow to 1,030.0p from 820.0p (buy), for Taylor Wimpey from 185.0p to 230.0p (buy), for Bellway from 3,700.0p to 4,620.0p (buy), for Barratt Developments from 720.0p to 860.0p (buy), for Persimmon from 2,670.0p to 3,250.0p (buy), for Crest Nicholson from 385.0p to 500.0p (neutral), for Vistry Group from 1,170.0p to 1,380.0p (neutral) and for McCarthy&Stone from 125.0p to 132.0p (sell).

For Berkeley Group it kept its target unchanged at 6,275.0p.

UBS further named Berkeley, Redrow and Persimmon as its top picks in the sector.

Having re-rated already to 1.85 times their price-to-tangible net asset value, versus 1.2 times in November 2019, UBS said the group was trading towards the higher end of its historical range and above the long-term average of 1.23 but believed that was justified.

"Early commentary from builders that have reported suggests rising levels of activity in early 2020 but we think the strength of the market will only become fully visible once the spring selling season gets under way. We have heard anecdotal evidence of price increases/removal of discounts and the extent to which these stick will be important," the analysts said.

"The upcoming UK budget (11 March) could also be important in gauging the policy path of the new government [...] An extension of HTB (in some form) could be a key area of upside to watch."