UBS downgraded its stance on shares of Persimmon and Crest Nicholson on Thursday as it took a look at the UK housebuilding sector.
The bank cut Persimmon to ‘neutral’ from ‘buy’ and Crest Nicholson to ‘sell’ from ‘neutral’, reducing the target prices to 2,915p from 3,070p and to 315p from 320p, respectively.
For Persimmon, it said the risk/reward is now more balanced after the stock delivered a more than 20% total shareholder return since the start of 2020. “Shares trade at a considerable premium on P/TNAV of 2.75x (sector 1.6x) which reflects substantially higher returns,” it said.
“While we like Persimmon’s attractive margin and return profile, we think the shares no longer prices in a material erosion of this and therefore we think the stock fairly reflects these superior returns.”
Meanwhile, UBS said Crest Nicholson looks expensive, in particular relative to other mid-caps, and “seems to more than price in a margin recovery towards the peer average despite execution risk”.
UBS said it remains positive on the sector overall and continues to think there is upside, although it is more limited at around 15% on average after the recent rally. The bank’s top picks are Berkeley Group, Redrow and Taylor Wimpey. UBS also has ‘buy’ ratings on Vistry Group, Barratt Developments and Bellway.
