Berenberg raises target price on Barratt Developments

Analysts at Berenberg raised their target price on construction firm Barratt Developments from 740.0p to 800.0p on Monday, stating the housebuilding sector had enjoyed a strong start to the year.

Berenberg stated the sector's solid start to the year had been spurred on by "continued favourable market data" and "supportive government action", with its forecasts for the group now ahead of consensus for 2021.

However, the German bank stated that as Barratt was now trading at roughly 1.5x full-year 2021 book value per share, it thinks that the market is anticipating a "strong performance" and as a result, the shares look "fairly valued".

Berenberg, which stood by its 'hold' rating on the stock, highlighted that completions were expected to recover to 2019 levels by 2022, with Barratt completing a total of 8,699 homes in the first half, at an average selling price of £283,000, generating total revenues of £2.5bn.

The analysts also stated that the group's balance sheet was strong and should support land investment or capital return, while their higher-margin expectations for Barratt should result in a return on equity of roughly 13%, compared to a five-year, pre-Covid average of about 15%.