RBC Capital downgrades Persimmon, Vistry

RBC Capital Markets upgraded Barratt Redrow and Crest Nicholson on Monday but downgraded Persimmon and Vistry as it took a look at UK housebuilders.
It said housebuilders have been oversold since the Budget and the sector is now trading below tangible book value. As a result, while "the weather outside might be starting to turn frightful, some of the housebuilders valuations' are delightful, and if they are below book, you must have look".

RBC said the Budget may have hit mortgage rates in the short term, but if we look through the sentiment to the underlying data there is more good news than bad.

"Not all housebuilders are the same and investors need to be discerning - in this note we look ahead to 2025 to try and help you pick the crackers from the turkey," it said.

The bank downgraded both Persimmon and Vistry to 'underperform' from 'sector perform'.

As far Persimmon is concerned, RBC said third-quarter commentary on build costs and building regulation planning changes lead it to believe that the embedded margins in its landbank may be at risk of downgrades come the full-year results.

"It has invested in build and quality, but housebuilding is not a zero-sum game, and lower margins may lead to a lower premium for Persimmon in 2025," it said.

RBC cut its price target on Persimmon to 1,275p from 1,475p.

It noted that Vistry has issued two profit warnings in as many months. "Whilst we are not saying things necessarily come in threes we believe that whilst provisions and cost calculations remain unaudited there are risks to the downside," RBC said.

"In addition, with many of its peers trading below book value we believe that the risk/reward trade-off has not moved in Vistry's favour."

RBC slashed its price target on Vistry to 500p from 825p.

The bank also downgraded MJ Gleeson, to 'sector perform' from 'outperform', keeping the price target at 650p. It said that following the sector selloff, Gleeson's relative valuation does not stand out as much as it once did and its pace of growth has slowed.

On the upside, RBC Capital upgraded Barratt Redrow to 'outperform' from 'sector perform', maintaining the 575p price target.

"In our mind the discount to book value now more than compensates for the risks associated with the merger fair value adjustments," it said.

Finally, the bank upgraded Crest Nicholson to 'sector perform' from underperform' and lifted the price target to 210p from 200p. m.

It said the legacy issues facing Crest are now largely in the rear-view mirror. RBC also said that an "accident-free" Q3 trading update gives it growing confidence that a corner has been turned and a share price bottom reached.

"We wait to see the next review of provisions, but we believe that the discount to book value is already factoring in the next round of increases," it added.