JPMorgan downgrades Barratt, Persimmon on valuation but says outlook still positive

The bank said it expects 2016 to be another year of improved profitability and strong operating conditions for the UK housebuilders.

“We see little risk either of either earnings downgrades, or of news flow that would meaningfully impact expectations for longer-term returns. While the sector is 38% up year to date, we still see an average 14% upside potential,” it said, adding that it sees most value in the small caps.

JPM said it continues to believe the land market dynamics and strong demand environment driving current solid returns are likely to persist, meaning the current average return on equity of 20% is sustainable and has upside, despite the historical average being only 15%.

It downgraded Barratt Development to ‘neutral’ from ‘overweight’ but lifted the price target to 665p from 650p and cut Persimmon to ‘underweight’ from ‘neutral’, raising the price target to 2,060p from 2,020p.

The downgrades were a valuation call and the bank said the outlook for both stocks remains positive.

JPM upgraded Crest Nicholson to ‘overweight’ from ‘neutral’ and lifted the price target to 650p from 600p.

At 1050 GMT, Persimmon shares were down 0.8% at 1,979p, Barratt was 0.6% lower at 609p and Crest Nicholson was up 1.8% at 553.73p.