As well as being cautious about the current slow market, Shore Capital warned that the Labour Party’s new election policy of making new-build housing ‘zero carbon’ by as soon as 2022 “would deny the house-builders access to what has now become a sizeable and lucrative market segment which we believe has been another factor driving up margins”.
In a note to clients on Monday, ShoreCap said Labour’s proposals “would be expensive for the house-builders”, with shadow housing minister John Healy referring in a weekend interview to the billions of profits and millions in executive bonuses that the new homes industry is making.
This indicated, in the broker’s view, “that any Labour government would have few issues tapping the sector’s profits to fund its policies to deliver a better society”.
Meanwhile, Berenberg dropped its price target on Bovis to 1,220p from 1,230p but reiterated its ‘buy’ recommendation.
Analysts at the German bank said the proposed acquisition of Galliford Try PLC’s (LON:GFRD) housing businesses could create a leading player in the sector, enjoying a greater exposure to England’s northern regions where inflation trends are more encouraging and housing is generally more affordable.
If completed, operating profit could be £360mln with £30mln synergies, boosting sales by 64% to £1.7bn.
According to the broker, Bovis represents “the clear turnaround story in UK housebuilding”.
“However, following the continued success of the group’s turnaround plan, alongside sector-leading growth, we expect the valuation gap to continue to close,” analysts at Berenberg said in a note.
There will be news from the sector later in the week, with Persimmon PLC (LON:PSN) due to give a quarterly trading update on Wednesday, while on Thursday Redrow plc (LON:RDW) is releasing a statement and Halifax is publishing its house price index, expected to reaffirm that house price inflation is trending towards a zero annual rate.