RPT-REFILE-UK housebuilder rally may be ending as Barratt joins FTSE 100

Fri Mar 7, 2014 8:18am EST

Related Topics

* Credit Suisse calls top on UK housebuilders' rally

* Bucks consensus as others see further double-digit gains

* Sector average 34 percent below intrinsic value-StarMine

* Demand to sell the sector short falling from low level

By Tricia Wright and Simon Jessop

LONDON, March 7 (Reuters) - On the day another housebuilder joined the UK's leading share index, Credit Suisse bucked the consensus and called the top of the market for one of the year's best-performing sectors.

The Thomson Reuters UK Homebuilding index has risen 10 percent in 2014. It doubled in value during the past three years, underpinned by tight supply and UK initiatives to spur the job-intensive sector, such as the 'Help-to-Buy' mortgage scheme.

After the Credit Suisse note, stocks in Bellway, Taylor Wimpey and Persimmon fell 2 to 3 percent - on the same day Barratt Developments won promotion to the FTSE 100.

Credit Suisse said house prices may well rise further, but it reckoned any good news was already priced into shares. Meanwhile, more competitive land valuations and rising mortgage costs could derail the rally.

"We recognise we may be a little early on this call, but given the huge performance in sector share prices over the past three years and the potential for sentiment to turn very quickly, we suggest, when considering the risk-reward balance, that it is prudent to take profits now," the investment bank said in a note.

Data from Thomson Reuters StarMine suggest the rally in housebuilders could maintain its momentum for the time being. And negative bets on the sector are decreasing.

Analyst sentiment remains bullish, even towards the best performers. Around three-quarters of StarMine's top-rated analysts have "buy" or "strong buy" ratings on Barratt Developments and Bovis Homes, which have gained about 30 percent and 15 percent respectively this year.

StarMine shows the firms in the sector trade at an average discount of 34 percent to intrinsic value.

The data rank companies based on the relationship between a firm's stock price and its most likely growth trajectory, using historical models and adjusting for analyst bias.

Meanwhile, Markit data show average short interest - selling borrowed shares, hoping to buy them back more cheaply and pocket the difference - is at just 0.2 percent, having dropped from around 0.5 percent in December.

George Godber, the manager of the CF Miton UK Value Opportunities Fund, owns shares in Redrow, Bellway and Crest Nicholson, and he expects they will continue to rise over the next 12 months. "I still think there's 20-30 percent to go," he said.

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