Cairn Homes at 48% discount to UK housebuilders says Credit Suisse

Credit Suisse has initiated coverage on Cairn Homes with an 'outperform' rating, five months after the Irish housebuilder's initial public offer in London.

The Swiss bank said Cairn, the first Irish housebuilder to float since McInerney in 1997, issued 440m shares at €1 apiece in an overalloted debut in June, raising €440m gross.

Credit Suisse said Cairn would represent a "robust play on the Irish recovery", targeting a price of €1.31 per share.

As in Britain, Ireland is forecast to see a growing imbalance in the housing market, as increasing demand meets acute shortage of new home supply and improving affordability, in which Cairn is expected to capitalise.

However on just 1.2 times the price-triple net asset value ratio, 48% discount to its UK housebuilding peers.

CS expect the group to deliver strong earnings growth and sees scope for a re-rating as the group's return on capital employed (ROCE) improves.

Analysts at the bank believe the proceeds raised at its 2015 IPO have set Cairn apart as one of the best-capitalised housebuilders in Ireland, placing it in a "distinct position of financial strength" to both acquire land and develop the sites.

"The favourable macro, in conjunction with a robust balance sheet, should lead to significantly improved ROCE and strong earnings momentum for the group."