Goldman foresees 'strong recovery' in UK housing market

12th Mar 2014 13:16

Goldman Sachs has upgraded Crest Nicholson from 'buy' to 'conviction buy', saying that the focus of the UK housebuilding sector is shifting from earnings to dividends after a strong reporting season."Eight of the 12 UK housing-related companies under our mid-cap coverage have recently reported results, which were generally very positive," the bank said.The performance over the sector on the whole outperformed consensus expectations, while Barratt Developments, Bovis Homes, Persimmon and Taylor Wimpey all increased their guidance for 2014. "Another key feature of the reporting season was the number of dividend surprises - Barratt, Persimmon and Taylor Wimpey all communicated dividends/cash returns ahead of previous announcements."Goldman said that it continues to expect a "strong recovery" in the UK housing market with transactions and completions forecast to grow by 15% per annum between 2014 and 2016 and house prices to rise by 6%.After the strong reporting season and in light of its favourable view on UK housing volumes and prices over the coming years, Goldman estimates that UK housing-related stocks could pay out £7.1bn of dividends over the next five years, equal to 27% of the current sector market capitalisation. Despite the strong share price performances across the sector - up a median 9% since the beginning of 2014 - Goldman's six-month price targets for housing stocks still imply median upside potential of 31%.The bank said its upgrade of Crest Nicholson reflects its "strong returns profile within our coverage and relatively attractive valuation after a period of underperformance". The target price has been lifted from 525p to 530p, implying 43% upside risk to current prices.Goldman has made five other changes to its investments lists: Persimmon and Rightmove have been lowered from 'conviction buy' to 'buy'; Redrow upgraded from 'neutral' to 'buy'; while Barratt and Countrywide downgraded from 'buy' to 'neutral'.Taylor Wimpey has been left on the 'conviction buy' list.BC