As the Bank of England leaves interest rates unchanged once more, housebuilders continue to make good gains in the wake of the autumn statement.
Chancellor George Osborne’s move to cut stamp duty on properties below £937,000 will give another boost to house prices although top end buyers will have to pay more.
So Persimmon has put on 50p to £15.90, Crest Nicholson has climbed 12.8p to 372.5p, Redrow has risen 10.2p to 291.3p, Bellway has added 66p to £19.26, Taylor Wimpey is up 4.7p at 137.2p and Barratt Developments is 14.8p better at 473.7p. Barratt and Taylor Wimpey are set to join the FTSE 100 later this month.
The sector was also helped by some positive analyst notes. UBS said:
We remain positive on the UK housebuilders with a potential total return potential on a 12 month view of around 20% on average. After a somewhat choppy second quarter, the sector has rebounded strongly in the second half as rate rise expectations have been pushed out, bringing total return outperformance versus the FTSE Allshare to 14% year to date. This should make 2014 the 4th consecutive year of significant outperformance of the sector.
The key positive fundamentals for the sector remain unchanged: (1) limited competition for land resulting in attractive rates of return on new developments; (2) supportive policy environment with both political parties supporting housebuilding, including Help to Buy (Stamp Duty reform is another signal of this); (3) generally good levels of affordability (although deteriorating somewhat) given historical low interest rates. As a result of these fundamentals, the sector is now returning significant amounts of cash to shareholders. We see the sector yielding an average 6.3% (2015) based on around a 50% payout ratio, which we believe is attractive given virtually no gearing.
To our mind the biggest risk is that the recent slowdown evident in the data accelerates which would ultimately translate into earnings pressure for the sector. In particular the upcoming General Election in May 2015 is an obvious catalyst for a potential slowdown in activity.
Meanwhile Panmure Gordon said:
Yesterday’s announcement regarding changes to stamp duty is likely to provide a feel good factor towards the sector as we move into 2015 and the most important trading period for the housebuilders. We continue to prefer Bovis and Redrow, which are trading on significant present value net asset value discounts to the wider sector.
What do we expect in 2015? The two most important drivers for the sector are consumer confidence and mortgage availability. Consumer confidence is likely to be given a boost by the stamp duty news and although mortgage data has been mixed of late, if we drill down, we can see mortgage approvals for new home purchases have actually been broadly positive. Whilst the [City regulator’s] mortgage market review has tightened the lending criteria (adding to long-term sustainability) mortgage products have increased in number and rates have fallen. With no reason to suggest any upward movement in interest rates until the back end of 2015, mortgage market conditions are likely to remain robust in our view.
We expect housebuilders will report a small decline in sales rates in the early part of 2015 (against a backdrop of strong comparatives), though would expect a high level of forward order book and an increase in site growth across the board to drive volumes a little higher... Margin improvement is likely to remain a feature of the sector, which should drive profitability improvements across the board.
