Broker tips: Housebuilders, Hunting

22nd Dec 2009 12:12

Goldman Sachs has turned bullish on two of the UK's biggest housebuilders, even though it sees little prospect of growth in house prices in 2010.The housebuilding sector has underperformed the market by around a quarter in the last three months, leaving the likes of Taylor Wimpey, Barratt Developments and Berkeley Group looking cheap. The US bank has upgraded Taylor Wimpey and Barratt from 'neutral' to 'buy', and is also a buyer of Berekley.In contrast, Redrow gets the thumbs down and is rated a sell.Goldman believes that although a revival in house prices in the UK may be two years off, the housebuilders have been too enthusiastic in writing down land values during the last two years, and that some of these write downs will be reversed in the coming months.Taylor Wimpey, cited by Goldman Sachs as the most aggressive in its write downs, has been given a price target of 47p, while the price target for Barratt is 165p.Panmure Gordon is advising clients to bag Hunting shares after the company's trading update on Monday, saying the company has 'turned the corner' and is set to further increase earnings.The broker has ramped up its 2009 earnings per share (EPS) forecast from 14.2p to 17.4p, while 2010 EPS is now predicted to be 19.7p, up from 15.1p previously, and it has not ruled out the possibility of more earnings upgrades to come.'We believe that the importance of this trading update is that momentum appears to have turned that the trading conditions are now improving and that earning estimates will now start to increase over the next twelve months,' the broker said.Although the broker's discounted cash flow model spits out a valuation of 504p per share for Hunting, the possibility of acquisitions may add further value.'The key to us will be in spending the pile of cash that the group built up through the sale of Gibson Energy which we believe is standing at approximately £380 million, which represents approximately 60% of the group's market capitalisation,' the broker concluded.