Broker snap: Buy on NewBuy - Credit Suisse stays positive on house builders

13th Mar 2012 11:00

The house builders were performing well on Tuesday morning, a day after NewBuy was launched. Credit Suisse has maintained its positive view on the sector today despite its recent strong performance, saying that the government's scheme is an 'incremental positive' to its investment thesis.NewBuy will see house builders pay 3.5% of the price of a house into an account held by the lending bank. The government will also guarantee 5.5% of the purchase price. It is designed to help first-time buyers onto the property ladder by giving banks confidence to provider higher loan-to-value rates."The government expects NewBuy to assist in the creation of 100,000 new homes (roughly equal to 100% of the current annual production rate)," Credit Suisse notes.While the broker thinks that this target is unrealistic, just a small fraction of it would have a material (positive) impact on 2012-2013 earnings per share (EPS) targets for the house building industry. It has raised its market volume forecasts for 2012-2013 to 4-6% (from estimates of no growth previously) and upped its market price estimates to 1-2% (from no growth)."We believe the cash return story which we focused on in 2011 has now to a large extent played out, given the recent announcements from Persimmon and Taylor Wimpey. However, we remain positive on the sector as our focus shifts away from an asset-backed story back to an earnings momentum story," the broker said.It expects average EPS growth of around 40% for the sector over the next two years and sees this as the share-price driver. The key outperform ratings are for Persimmon, Taylor Wimpey and Bellway.BC