HSBC upgrades housebuilders, says market downturn more than priced in

HSBC upgraded its stance on a host of housebuilders on Thursday as it argued that a downturn in the housing market and tepid recovery in return on invested capital are more than priced in to the shares.

The bank upgraded Barratt, Bellway, Crest Nicholson, Persimmon, Redrow and Taylor Wimpey to ‘buy’ from ‘hold’. Their target prices were lifted to 570p from 390p, to 2,700p from 2,030p, to 270p from 230p, to 1,550p from 1,410p, to 670p from 500p, and to 150p from 105p, respectively.

HSBC upgraded Berkeley to ‘hold’ from ‘reduce’ and the target price to 4,000p from 3,000p. Finally, it reiterated its ‘buy’ rating on Vistry and hiked the price target to 1,060p from 900p.

"We now have greater visibility about the shape of the current housing market downturn for the housebuilders’ profits and cash flows and their recovery from it, which we believe to be more than priced-in to share prices," HSBC said.

HSBC said its preferred picks, with more than 30% implied average upside, out of its seven buy-rated stocks are partnerships play Vistry, Redrow and national volume builder Taylor Wimpey, all of which trade at large discounts.

"Dividend yields are attractive across the sector, averaging 5.4% to 8.1% in 2023-27e, whilst we see material additional surplus capital potential for Redrow and Persimmon, assuming no year-end indebtedness including land creditors," it said.