UK housebuilders have little to be afraid of, says Liberum

18th Jul 2014 10:53

Liberum has trimmed target prices across the UK housebulding sector but said it still sees upside for stocks despite concerns about a slowing down of the housing market.Taylor Wimpey and Bellway have been named as the top picks in the sector with 'buy' ratings. Bovis Homes, Gleeson and Redrow are also 'buys'.Liberum kept a 'hold' recommendation for Berkeley and Persimmon but downgraded Barratt Developments from 'buy' to 'hold' largely on relative valuation grounds.The broker said that fears about "perceived threats" to the industry have been overdone and risks are "more benign than the market seems to think"."We look at mortgage availability, mortgage regulation and rate rises as the most obvious threats and find that there is little to be too afraid about," Liberum said.In particular, the broker believes that policymakers will refrain from hiking interest rates in the absence of wage increases. When these happen, higher pay should mitigate the impact of higher rates, it said."In spite of trimming price targets from our old ambitious valuation approach, we still expect 16% total shareholder returns across the sector on a 12-month view as shares follow net asset values up [even] in the absence of a re-rating," the broker said.The lower assumed valuations are due to the belief that the market will not pay more for housebuilders while rates are rising.BC