JP Morgan upgrades Countryside, Redrow as it reviews UK housebuilders

JP Morgan Cazenove adjusted ratings on a number of UK housebuilders on Thursday, noting a solid performance from the sector year-to-date, on a combination of earnings guidance upgrades, confident commentary from companies, improved housing market data, and a benign white paper.

The bank upgraded Countryside Properties to 'overweight' from 'neutral' on valuation as it now sees 15% upside potential to its unchanged price target of 275p.

JPM noted the stock has underperformed the sector by 25% since mid-2016.

"We continue to believe that Countryside’s earnings are more cyclical than generally perceived and, therefore the stock’s performance should have been more closely correlated with the sector year to date."

It also upgraded Redrow to 'overweight' from 'neutral', lifting the price target to 600p from 500p.

It said that despite upgrading earnings guidance twice already this year, Redrow has not outperformed.

"Now that the group has officially ruled itself out of another bid for Bovis, we believe investor focus should fall on the standalone valuation."

The bank downgraded Bovis Homes to 'neutral' from 'overweight' and slashed the price target to 889p from 1,070p.

Commenting on the news on Wednesday that Galliford Try has abandoned its plans to make a formal bid for Bovis, it said: "The breakdown of the second merger discussion in a week leaves an absence of potential acquirers, however in our view, the relatively limited synergies were unlikely to provide very material upside from current levels."

JPM added that the appointment of Greg Fitzgerald as chief executive officer should be viewed positively, given his strong reputation and significant housebuilding experience.

It cut Crest Nicholson to 'neutral' from 'overweight', keeping the price target at 590p.

Overweight-rated Persimmon and Berkeley remain its top picks, while in the small caps space, it favours Bellway and Redrow.

At 0955 BST, Countryside shares were up 3.2% to 253.30p, Redrow was up 1.7% to 522p, Bovis was down 1.4% to 880p, and Crest Nicholson was off 1.6% to 540p.