Peel Hunt downgrades housebuilders on Brexit uncertainty
By Michele Maatouk
Date: Monday 10 Dec 2018
(Sharecast News) - Housebuilders were under the cosh on Monday as Peel Hunt cut its stance on several names in the sector, with Brexit uncertainty a concern.
The brokerage cut Barratt Developments and Berkeley to 'add' from 'buy' and Crest Nicholson to 'reduce' from 'hold'. It also downgraded Taylor Wimpey to 'hold' from 'add'.
Barratt's target price was cut to 510p from 680p, while Berkeley's was reduced to 3,790p from 4,870p. Crest Nicholson's price target fell to 305p from 330p and Taylor Wimpey's was bumped down to 140p from 220p.
In the note, which was written before news broke that this week's Brexit vote would be postponed, Peel Hunt said the longer-term prognosis for the sector was "favourable" whether the Brexit deal passes through parliament or not.
"However, the shot-term outlook for UK housebuilders clearly remains volatile, mainly due to the economic uncertainty caused by the Brexit process," it said.
The brokerage cut its house price inflation forecast for CY19-20 to zero from around 2% previously. It also chopped 2-3% off its volume assumptions.
Overall, Peel now forecasts an aggregated revenue compound annual growth rate of 2% over the next two years versus 4.3% previously and an operating margin decline of 110 basis points to 18.4%, versus a previous forecast for it to be flat between CY18 and CY20.
At 1520 GMT, Barratt shares were down 3.9% to 445p, Berkeley was off 0.9% at 3,325p, Crest Nicholson was down 6.6% at 315.40p and Taylor Wimpey was down 2.7% to 130.40p.
Peel said in the note that Crest Nicholson remained one of the most exposed in the sector to volume and/or price pressure.
"We forecast revenue declines of 8-10% over the next two years, and with ongoing build cost pressures our numbers point to an operating margin decline of 250bps to circa 13%," it said as it cut its pre-tax profit forecasts by 22% and 29% for FY19 and FY20, putting it around 30% below consensus.
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