RBC cuts target price for Berkeley, but hails long-term strategy
By Benjamin Chiou
Date: Monday 09 Dec 2024
(Sharecast News) - RBC Capital Markets has cut its target price for Berkeley Group and reiterated an 'underperform' rating, saying that while the long-term picture looks intact, it has cut its forecasts for shareholder returns.
RBC has lowered its target price from 4,950p to 4,700p for the stock, which was trading 0.7% higher at 4,148p on Monday morning.
Following the housebuilder's guidance last week for shareholder returns of at least £2bn over the 10 years to 2035, RBC has cut its estimates for returns over 2026, 2027 and 2028.
Up until last week, when the housebuilder announced its new 10-year strategy (Berkeley 2035), the company had been cutting back on land purchases due to a stricter planning and regulatory environment, choosing to return more cash to shareholders.
However, with the new government being pro-growth and pro-housebuilding, Berkeley has "got its mojo back and is doing what is doest best - buying land and optimising planning today to deliver higher profits tomorrow", RBC said.
"Whilst some have grumbled at the implied reduction in shareholder returns in the first half of Berkeley 2035, in our view they are missing the fact that big cash returns today shrink the business and reduce the returns of tomorrow-you can have too much of a good thing," the broker said.
While RBC said it "fully support[s] Berkeley's strategy", it rates the stock as 'underperform' on a valuation basis, saying it prefers sector peer Bellway which trades at a higher price-to-book ratio.
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