Canaccord starts McCarthy & Stone at 'buy'

Canaccord Genuity initiated coverage of McCarthy & Stone at ‘buy’ with a 185p price target, noting it is the dominant market leader with a strong brand in the private retirement housing market.

“We have a generally positive view of the UK house-building sector and believe that McCarthy & Stone offers an investment opportunity in a very attractive niche within the sector.”

The brokerage highlighted the group’s clear strategy of delivering strong organic growth supported by a positive demographic backdrop. It said the medium-term demand outlook is favourable for McCarthy to meet its strategic objectives, with an industry shortfall of supply that it is well positioned to help address in coming years.

“The balance sheet is relatively strong with minimal financial risk. While a more challenging macro backdrop over the coming twelve months may delay reaching its FY 2019 targets, we do expect the group to deliver good growth, returns and value over the medium term as it benefits from its strong position in a market with a very attractive long-term outlook.”

Canaccord said that following the re-rating of the shares, they now offer good medium-term value. It noted the shares now sit at discount to the IPO price of 180p and sector average valuation.

It expects the company to deliver pre-tax profit of £105m in FY2016 and £111m in FY2017.

At 1015 BST, McCarthy shares were up 6.4% to 173.35p.