Broker snap: Deutsche Bank still positive on UK construction stocks

8th Jan 2013 10:16

Analysts at Deutsche Bank have today delivered a glowing review of the prospects for the UK's homebuilders, in turn raising their price targets on all of the companies within their universe. Thus, they explain that, "through 2012 the UK house builder sector re-rated, moving from 0.69 times 2012 Net Tangible Asset Value (NTAV) to 1.0 times 2013 NTAV. However, as the sector reaches returns that cover its cost of capital in 2013, moving to mid teen levels by 2014/2015, we believe a further rerating is available. A sector creating mid teen return on capital employed (ROCE) on a sustainable basis (the upside being based on self-help measures rather than any housing market pick-up) we believe deserves to trade at a 20% premium to its NTAV (mid-range of its 2000-2005 valuation range)."Our top picks are Barratt (significant P&L leverage to new land, faster than expected debt paydown, strong turnaround in ROCE, 10% discount to NTAV), Bovis (strong growth story with volumes, price and margins all offering scope for upside, a fast turnaround in ROCE, 10% discount to NTAV) and Berkeley Group (strong pick up in the selling prices and margins from its new London developments with potential for larger cash returns in the medium term), they write, adding that, "Barratt would be our preference in a scenario of higher volumes."Deutsche Bank has raised its price target on Barratt Developments to 278p (from 224p), on Bovis to 667p (from 599p) and on Berkeley Group to 1,941 (from 1,925). AB