Broker snap: Housebuilders undervalued

23rd Feb 2010 11:24

With the housebuilding sector trading at a 30% discount to projected 2010 net tangible asset value Deutsche Bank thinks there are bargains to be had in the sector and has identified Barratt, Persimmon, Redrow and Taylor Wimpey as its top picks. The German bank is expecting the upcoming results season to see a succession of operators report sequential growth in completions, as well as good news on the forward selling front and anticipated selling prices.'With balance sheets now rejuvenated by strong operational cash flow generation and rights issues, the debt and gearing focus is likely to centre on land acquisition capability and ambition,' Deutsche suggests.The key element in eliminating the discount to net tangible asset values is, in Deutsche's view, improvements in operating margins. The main downside risks are political factors, plus the availability and affordability of mortgages, and also economic factors such as the Bank of England interest rate, the unemployment rate and consumer confidence, and political factors.Deutsche rates Barratt Developments, Persimmon, Redrow and Taylor Wimpey as 'buys' in the sector. Price targets for these stocks are:Barratt: 193pPersimmon: 571pRedrow: 168pTaylor Wimpey: 63p