Berenberg upgrades Barratt Redrow, Bellway to 'buy'

(Sharecast News) - Berenberg upgraded Barratt Redrow and Bellway on Friday to 'buy' from 'hold' as it took a look at UK housebuilders. The bank said it was reviewing earnings forecasts, ratings and price targets for the names under its coverage.

"Our market view and forecasts reflect a pretty downbeat outlook," it said. "However, within this sombre framework we think there are interesting opportunities emerging when we consider three factors: valuation, balance sheet and capital returns. Indeed, it is these three factors that underpin the upgrades to buy in this note of Barratt Redrow and Bellway."

Berenberg said that supported by strong balance sheets, it sees attractive capital return (dividends and buybacks) programmes at each of Barratt, Bellway and Taylor Wimpey, which equal 8%, 11% and 10% respectively per annum.

"We view this is as a crucial part of total shareholder return in the next couple of years," it said.

In the same note, Berenberg downgraded Berkeley to 'hold' from 'buy'. It said its long-held admiration for the company's differentiated business model, with impressive operational and financial outcomes, is unchanged.

However, it is downgrading its rating given the stock's relative outperformance, which means the valuation - at 1.0 TNAV - and upside are less compelling than other opportunities in sector.

Berenberg cut its price target on Barratt to 348p from 415p and lifted the PT on Bellway to 2,400p from 2,100p. It kept its 4,000 price target on Berkeley.

The bank maintained its 'hold' rating on Crest Nicholson, Persimmon and Vistry, and its 'buy' on MJ Gleeson and Taylor Wimpey.

As far as the political landscape goes, Berenberg said the imminent change in UK prime minister does not impact its base investment view.

"However, a new PM showing greater willingness to support customer demand with policy actions, such as relaunching Help to Buy, would be a clear positive," it said. "On the other hand, any policy initiatives that resulted in higher UK bond yields would be a net negative."