Housebuilders slump as Liberum highlights margin concerns

“We believe the largest housebuilders’ valuations are too optimistic to withstand the gross margin pressure that we expect in the coming years as house price inflation is suppressed by a more vigilant regulator and build cost inflation returns.”

Liberum said these three stocks are especially vulnerable to falling gross margins as managements have turned their backs on volume growth.

The brokerage sees better value in some of the builders who can grow profits by raising output, such as ‘buy’ rated Bellway and Gleeson, which are its top picks.

As far as Barratt is concerned, Liberum said it has the most scope to continue to grow volumes to potentially offset gross margin pressure, but its high valuation assumes a setback-free outlook.

Liberum said that while Persimmon is rightly admired for the quality of its land bank and how well it managed the downturn, its valuation appears to assume continued growth in margins and returns.

Taylor Wimpey is the most improved housebuilder in the UK, making excellent use of strategic land to keep land costs under control as well as repositioning itself away from secondary locations.

However, its valuation has become very demanding and may not accommodate the threat of margin pressure, Liberum said.

It lifted Barratt’s price target to 539p from 536p, but cut Persimmon’s to 1,703p from 1,856p and Taylor Wimpey’s to 155p from 165p.

At 1138 GMT, Taylor Wimpey shares were 4.1% lower at 190p, Barratt was down 3.8% at 586.98p and Persimmon was 2.4% weaker at 1,920p.