Canaccord Genuity raises target price on McCarthy & Stone

Analysts at Canaccord Genuity raised their target price on homebuilder McCarthy & Stone from 80.0p to 115.0p on Friday following today's unexpected offer from private equity group Lone Star.

Canaccord stated that the offer had come "as a surprise" but noted that it was not surprising that it was being recommended.

The Canadian broker noted that McCarthy & Stone had seen profits, returns and its share price "fall severely" over recent years as it faced a challenging secondary housing market and more recently the impact of Covid-19 and said it felt that with the onset of a second wave of the virus, it was only reasonable to expect trading conditions and the implementation of elements of its strategy to become "more difficult", particularly given the average age of its customer.

"This would likely put more pressure on profits and the balance sheet, with the timing of returning to pre-Covid profits and returns likely pushed out beyond the FY2022 time horizon expected," said Canaccord.

While the analysts said there was arguably "more attractive long-term value potential", they believe the timing of achieving this and shorter-term risks had increased.

"Clearly, Lone Star is able to take a longer-term view and has strong positions and expertise in real estate," said Canaccord.

"We would expect the offer to be successful with the transaction expected to be completed late this year or early 2021. We increase our target to 115.0p to reflect the offer made and think a counteroffer is unlikely."