UBS lifts Berkeley price target, sees period of excess capital generation

22nd May 2015 15:12

UBS raised its price target on Berkeley Group to 3400p from 2900p, noting that it expects the London property market to pick up again from its pre-election slowdown."We now expect a recovery in the London property market as the risk of a more adverse tax regime has been eliminated, in particular in the higher value segment," UBS said.It said that Berkeley is extremely strongly positioned, with excellent land holdings across London and the South East. It also noted pointed out that the company has been active in acquiring land throughout recent years, in particular benefitting from low prices during the crisis."Both a strong existing and pipeline land bank ensures high returns are sustainable over the long-term. Berkeley also benefits from a very experienced management team who have the track record in acquiring land at the right time and prices," remarked UBS.It expects Berkeley to move into a period of significant excess capital generation, allowing for the payment of an annual yield of 8.6% over the next 7 years, under conservative assumptions"Starting with a strong net cash position of around £400m we expect annual equity free cash flow over the next 7 years of £375m per annum," said UBS.Ultimately the question will be how this excess cash flow will be deployed, it added.UBS rates the stock at 'buy'.