Goldman adjusts ratings on UK housebuilders after Brexit

28th Jun 2016 09:24

(ShareCast News) - Following the UK's decision to leave the European Union, Goldman Sachs expects new build volumes in UK housing to drop 10% next year, versus a previous forecast of 7% growth and house prices to fall by 2%/5% in 2016/17.As far as the UK economy is concerned, the bank has cut its 2017 GDP forecast by 1.8 percentage point to 0.2% year-on-year and the eurozone estimate by 0.3 pp to 1.2% year-on-year.GS upgraded Wolseley to 'buy' from 'neutral' noting its significant exposure to the US, from where it derives 75% of Ebitda. "We think that Wolseley's leading position in US Plumbing and Heating distribution, with construction end markets remaining robust, will allow the group to grow EBITDA by c.7% through 2020 and offsetting short-term weakness in UK, Nordic and Canadian operations."It cut the price target on Wolseley to 4,226p from 4,294p.The bank downgraded Bovis Homes to 'neutral' from 'buy' and slashed the target to 684p from 1,320p on the back of its outlook for the UK housing market. "Based on our lowered market assumptions, we reduce our revenue/EBIT estimates by 23%/32% on average through CY16-19, and forecast the group's median EBITA margin to be 17% through CY16-19 (vs. 19% earlier)."It also cut its stance on Bellway to 'neutral' from 'buy', chopping the target to 1,715p from 3,590p. "We reduce our revenue/EBIT estimates by 25%/42% on an average through CY16-19 to reflect our lowered market assumptions for both price inflation and volume growth."Goldman also took Redrow down to 'neutral' from buy' and cut the price target to 301p from 595p and Berkeley Group to 'sell' from 'neutral' with a reduced price target of 2,110p from 4,000p."While we believe the bear case on Berkeley is well understood (exposure to stretched affordability trends in London, reduced opportunities for the business to sustain high returns achieved on land acquisitions from 2009-12) we believe the current risk/reward profile remains unattractive when assessing the drivers of upside from here."Countrywide and Foxtons were both cut to 'sell' from 'neutral' while their price targets were reduced to 218p from 465p and to 96p from 198p, respectively.On Monday, Foxtons warned that full-year revenue and adjusted earnings would be "significantly lower" than the previous year due to uncertainty caused by the EU referendum.