Demand for housebuilders and house price look highly unlikely to fade before the end of the year, analysts at Credit Suisse said as they said the significant variance in sector share performances provides opportunities for investors.
Sector valuations, it was noted, have not been sustainably cheaper for almost a decade, with current prices on average 1.3 times tangible net asset value.
Persimmon PLC (LON:PSN), for example, has been the Swiss investment bank’s top pick throughout this year and, with the shares down 4% since the start of January, the analysts still see 19% upside to their 3,094p target price and “scope for near-term upgrades”.
Having not fallen as much as other builders, the analysts said they are “increasingly conscious the stock has held its premium multiple this year, despite the recovery potential post 2021 being significantly higher elsewhere”.
Looking at fellow FTSE 100 builder Taylor Wimpey PLC (LON:TW.), which has fallen 40% so far this year, the analysts estimate that on fully recovered earnings, TW trades at a circa 38% discount, “which we think overvalues PSN’s superior execution and dividend”.
Taylor Wimpey was, as a result, upgraded to ‘outperform’ from ‘neutral’ and nudging the target price to 158p from 154p, and Persimmon downgraded to ‘neutral’ from ‘outperform’ with an unchanged target.
TW has been oversold and is now “top pick… viewing the impacts on profits for 2020/21 as one-offs that in a flat market should start to unwind from 2021 onwards.
“We view a likely improvement in sales trends vs. the sector into 2021, increased focus on 2022 earnings, and an absence of further downgrades from here as potential catalysts for TW outperformance.”