Back the right housebuilders
BRITAIN’S housebuilders are set for another good year but investors should back the right horse to make the most of the situation.
That is the message from analysts at JP Morgan Cazenove who have downgraded their stance on Barratt Developments and Persimmon but upgraded rival Crest Nicholson. The sector is up 38pc so far this year and the bank reckons shares could rise by another 14pc amid strong demand for new homes across the country.
‘We see little risk of either earnings downgrades or of news flow that would meaningfully impact expectations for longer-term returns,’ the analysts said in a note to clients.
JP Morgan downgraded Barratt Developments to ‘neutral’ from ‘overweight’ and cut Persimmon to ‘underweight’ from ‘neutral’. But it upgraded Crest Nicholson to ‘ overweight’ from ‘neutral’.
Barratt shares, which have risen more than 30pc this year, fell 2.5p to 610p while Persimmon, also up more than 30pc in 2015, dropped 26p to 1968p.
Crest Nicholson, which floated at 220p in February 2013, closed 8p higher at 552p last night – taking its gains since rejoining the stock market to 150pc.
Property website Zoopla was also in focus yesterday after analysts at Jeffries upgraded its earnings forecasts for the full year by 15pc to £48m.
The bank retained its ‘buy’ rating on the stock, which is 31.32pc owned by DMG Media, parent company of the Daily Mail, and shares rose 7p to 249.7p.
Jeffries analyst Anthony Codling noted that Zoopla is currently the UK’s number two property website, behind Rightmove (up 25p to 3864p). But he explains that new player On The Market, which was set up early this year by a group of estate agents to challenge Rightmove and Zoopla, intends to be number two by January. ‘If it misses this target, it will be interesting to see if the industry judges it a failure,’ Codling writes.
‘If targets are missed, will the agents be willing to invest more money in On The Market to give it a second chance at becoming number 2, or will the marketing money switch back to the tried, tested and truly innovative Zoopla’s coffers?’
He adds that Zoopla has ‘more to gain than Rightmove which had fewer causalities in the On The Market war than Zoopla’.
‘We believe, therefore, that should On The Market fail to advance, Zoopla has more to gain from returning customers,’ Codling says in his notes.
It was a subdued start to the week and the month on the London market with the FTSE 100 index gaining just 0.71 points to 6361.8 following its 5pc rise in October.
The FTSE 250 was up 50.19 at 17167.4 while the Dow Jones Industrial Average was 165.22 points better on Wall Street.
Compass Group was among the blue chip losers after Credit Suisse downgraded the stock’s rating from ‘ neutral’ to ‘ underperform’ and trimmed the target price from 1100p to 1050p.
Analysts at the Swiss bank voiced concern about the outlook in Compass’s fast growing and emerging markets division. In July, the company warned of a ‘more subdued environment’ in that part of the business. Its shares drifted 36p lower to 1083p.
Outsourcing firm Serco fared much better in the second tier after RBC Capital Markets upgraded the stock to ‘sector perform’ from ‘underperform’ and kept its target price at 9500p.
‘ Whilst risks clearly remain and the recovery will take time, for the first time in a while we see more limited downside and the balance sheet is no longer an issue,’ the bank said. Serco shares jumped 6.05p to 99.75p.
The company was last month forced to apologise for the ‘clearly inappropriate’ deci- sion to hire a stretch limo to ferry a group of asylum seekers from London to Manchester.
It was another bruising day for investors in Pets At Home following disappointing halfyear figures last week.
Shares fell more than 7pc on Friday after the company said sales rose by just 1.8pc in the 28 weeks to October 8 – well down on the 4.2pc increase seen in the same period last year.
The stock, which floated last year at 245p, sank another 4.7pc or 13.5p to 275p yesterday having hit a record high above 310p before last week’s grim update.
Back in the top flight, EasyJet was down 37p to 1713p after HSBC cut its target price to 1600p from 1800p and downgraded its rating to ‘reduce’ from ‘hold’.
The bank also expressed caution about British Airways owner International Consolidated Airlines Group (IAG), cutting its rating from ‘buy’ to ‘hold’ and the target price from 7000p to 6250p. IAG shares rose 5p to 587.5p.