Housebuilders climb as Deutsche highlights sector's value, yields, risks

4th Jan 2017 12:14

(ShareCast News) - Deutsche Bank has highlighted the "significant" value in the UK housebuilders sector, singling out Taylor Wimpey as its top pick and upgrading McCarthy & Stone onto its 'buy' list.Noting that investor appetite for UK focused stocks has subsided in light of risks around Brexit, Deutsche said the dividend yields on offer were "difficult to ignore" and said it believes forthcoming updates from the builders should continue to reassure on strong cash flow and return on capital.While macroeconomic events such as the timing and extent of EU exit, the UK's economic vicissitudes and government housing policy may create share price volatility, especially through the first quarter, the bank believes the sector offers "opportunity for 30% upside".As the UK economy and housing market seem to have largely shrugged off the impact of the Brexit vote, Deutsche analysts have made significant increases in their estimates back towards those held before the Brexit decision.On a ratio of price to net tangible asset value, the UK housebuilding sector now trades at 1.3 times for 2017 and 1.2 for 2018, "which with the sector achieving ROCE up to three times its cost of capital, we believe overplays the risk to future earnings".The reshuffling of ministers in charge of housing has increased the risks for the sector from governmental dabbling, though the much-anticipated Housing White Paper due later in January was felt more likely to impact sentiment more than earnings."However, we believe any weakness in share prices around this time should be used as a buying opportunity with the sector likely to demonstrate steady reassurance through the year with its continuous cycle of trading updates."'Buy' ratings were retained on TW, Barratt and Berkeley Group, with McCarthy & Stone added to that list due to the "strong value" seen there, while Bovis was downgraded to 'hold' reflecting the "continued operational stutters which have impacted confidence in forecasts".Reflecting the balance of higher earnings estimates to some extent offset by the increased risk in the sector, Barratt's target price was moved to 605p from 575p; Berkley to 3,559p from 3,876p; Bellway to 2,950p from 2,702p; Bovis cut to 1,066p from 1,190p; Crest Nicholson lifted to 564p from 525p; McCarthy trimmed to 211p from 219p; Persimmon was held and 2,069p; Redrow upped to 519p from 497p; and TW lifted to 239p from 218p.