Jefferies downgrades Berkeley Group on valuation

Jefferies downgraded Berkeley Group to 'hold' from 'buy' on valuation grounds, but lifted the price target to 4,214p from 3,958p.

It pointed to a period of sustained share price growth, saying that the downgrade is driven "more by the head than the heart".

"We are very supportive of the group's business model. There is, in our view, an acute shortage of housing in London, however, we believe the share price now reflects much of that supply tension," it said.

Jefferies noted that over the last 30 years, Berkeley has seen positive first-quarter share price growth 83% of the time with an average gain of 12%. However, it said that at this point in time, other UK housebuilders it covers offer more upside from here.

The broker upgraded its FY18 and FY19 pre-tax profit estimates by 10% and 13% respectively, to reflect new guidance provided at last week's half-year results.

The London-focused housebuilder said last week that it expects to generate pre-tax profit of £3.3bn in the five years to 2021, up from the £3bn initially indicated. Of this, £1.5bn PBT will be delivered in the two years to end-April 2019, approximately 60% weighted towards the current year.

At 0950 GMT, the shares were down 0.5% to 4,080p.