Broker snap: Credit Suisse raises targets on UK house builders

21st Nov 2011 12:14

Analysts at Credit Suisse are quite positive on the ability of UK house-builders to tap their holdings of land to generate cash if necessary.For that reason they have decided to raise their price targets on several of those companies, while maintaining their positive view on the sector. By their estimates, "Under a scenario where the industry operated for cash in 2012, along the lines of our Liquidation Value analysis, for one year only before returning to the medium term strategy we think the industry could generate £2.3bn of cash, equal to 35% of the current industry market cap. We think the average land bank length of 5.3x could be reduced by one year without making any material negative impact on the business model," they point out. The above despite the fact that they have made no changes to their 2012 core view of 0% price & volume growth. In fact, and despite seeing no top line momentum, these analysts now expect to see average margin expansion of 185bps for the next two years due to declines in land cost/sales ratio's, driving circa 40% average EPS growth.Credit Suisse has thus raised its target price on Bellway to 850p (from 768), on Persimmon to 572p (form 571) and on Taylor Wimpey to 46p (from 41). AB