Crest Nicholson and Foxtons upgraded as Goldman hails mid-size housebuilders

9th Sep 2015 10:48

(ShareCast News) - In a note analysing the prospects of the UK housebuilders and estate agents sector, Goldman Sachs downgraded both Taylor Wimpey and Redrow to 'neutral' and upgraded Crest Nicholson to its 'conviction buy' list and Foxtons to 'neutral'.Recent data has continued to support a positive view on the new build sector's fundamentals, including lead indicators for transactions continuing to point to an improvement in the second half after a subdued first.Goldman said it expected the sector to benefit from the UK's need for increased housing supply, though buying transactions remained more cyclical.With the land market remaining favourable, along with an increased usage of strategic land sites, the bank sees continued margin expansion for the housebuilders, aided by a limited impact from the looming Bank of England interest rate rise."We reiterate our belief that limited and gradual interest rate hikes are less likely to structurally impact housing market fundamentals, given the stringent lending standards that have been in place since mid-2014, and the subdued level of transactions in the market currently versus historical peaks."Goldman said it saw "selective value", with more compelling upside levels in the mid-sized housebuilders versus larger peers.After strong share price performance in the year to date, with UK housing up 46% versus European construction's 28% gain, analysts now see 19% potential upside for the housing stocks.Housebuilder Crest Nicholson is upgraded from its former 'neutral' rating on the belief that its current valuation does not fully reflect its "sector-leading growth prospects, and the attractive returns on capital" forecast, with huge upside seen on a 12 month price target of 790p.Lofty target prices are also set for both Bovis Homes and Bellway too, which like Crest offer "attractive earnings growth as they look to grow into optimal scale", underpinned by solid land investments made in the last few years.London-focused estate agent Foxtons is given a reprieve from the previous 'sell' recommendation, with a small amount of upside seen on an updated 12 month price target of 259p.After their strong share price gains, both Taylor Wimpey and Redrow are knocked off the 'buy' list, though their respective target prices of 235p and 563p still offer strong upside.