Jefferies sees 100% yield at Berkeley Group over seven years, upgrades to 'buy'

22nd Apr 2022 10:34

(Sharecast News) - Analysts at Jefferies upgraded their view on Berkeley Group Holdings and hiked their target price, arguing that the shares weren't discounting an expected step-up in the company's capital returns nor higher returns on equity.

Yes, the homebuilder's earnings could be lumpy because of its efforts to maximise the value of its land bank.

However, its St.William joint-venture was fast forwarding land buying, investment in its regen sites was topping out, working capital was set to inflect in coming years, as was delivery.

Those factors were expected to drive a "meaningful" step up in capital returns, to the tune of a 100% yield over seven years, and lift the company's return on equity back above 20.0%.

But neither of those two outcomes was reflected in the shares' valuation.

Hence, they upgraded their recommendation from 'hold' to 'buy' and revised their target price from 4,703.0p to 5,587.0p.

As an aside, they noted that incorporating the recent acquisition of St.William into their estimates had led them to bump up their forecast for fiscal year 2024 profit before tax by 5.0%, putting Jefferies 10.0% ahead of the consensus, which had yet to incorporate that purchase.