Broker tips: Berkeley, MJ Gleeson, Lloyds, NatWest

Analysts at Berenberg took a fresh look at a number of UK housebuilders on Friday, reiterating its 'cautious view' on the sector.

Berenberg stated that as a result of "further declines in affordability", it had lowered its base-case forecasts for the UK housing market and cut pre-tax profit forecasts by roughly 40%, on average.

"Importantly, we do not expect the sector-wide trough in earnings to occur until 2024," said Berenberg. "Indeed, we do not yet believe that company valuations are attractive enough for us to turn more positive on the sector and we maintain just two 'buy' ratings, primarily for stock-specific reasons."

The German bank said Berkeley was still its 'top pick' in the sector, reiterating its 'buy' rating on the stock and 4,500.0p target price. "Despite reducing our base UK housing market volume and price assumptions, we leave our forecasts for Berkeley unchanged. We think that the company can meet its multi-year PBT and capital return targets despite tougher market conditions," said Berenberg.

Berenberg also kept its 'buy' rating on MJ Gleeson, but cut its price target to 470.0p to reflect "a more challenging trading outlook". "While we note that MJ Gleeson is not immune from the current market headwinds, we believe that its lower selling point and growth opportunity present midterm attractions," said the analysts.

RBC Capital Markets upgraded Lloyds on Friday but downgraded its stance on shares of NatWest.

Lloyds was lifted to 'outperform' from 'underperform' and its target price was boosted to 57.0p from 44.0p.

RBC said it expects the market will start to reward Lloyds for better cost control and asset quality versus peers. It said the stock’s valuation screens "as attractive", hence the upgrade, and the target price implied a 24% upside.

RBC cut NatWest to 'sector perform' from 'outperform' and reduced its price target on the stock to 290.0p from 300.0p and said its call was "anti-consensus".

"Whilst valuation remains attractive, we see the potential for more upside elsewhere," it said. "Earnings momentum from higher rates may have peaked, and we worry about the bank's cost trajectory in FY23."