LONDON: UK government-backed schemes have revitalised mortgage lending, helping drive stellar gains in housebuilders’ shares which could still be undervalued by 45 percent.
Forecast-beating results from Persimmon on Tuesday were the latest in a string of buoyant earnings releases from the sector.
Housebuilders have been among the top performers on the UK stock market this year, up some 42 percent, underpinned by UK moves to fire up the job-intensive sector.
The latest was the Help-to-Buy mortgage scheme, unveiled in March to aid first-time buyers who were practically blocked from the market in the wake of the financial crisis.
Lending to first-time buyers in the UK was at its highest in the second quarter of this year since 2007, the Council of Mortgage Lenders said.
Housebuilders have also benefited from building on land bought cheaply after the recession of 2008-9, which has lifted margins and seen earnings estimates upgraded.
UK house prices have been rising strongly in recent months but this is not necessarily good for housebuilders as the land on which they build becomes more expensive to acquire.
Despite the share price surge this year against respective gains of nine percent and 19 percent on the FTSE 100 and FTSE 250 indexes, analysts still see further gains.
Thomson Reuters StarMine shows the firms in the sector trade on average at a discount of some 45 percent to intrinsic value.
The data ranks companies based on the relationship between a firm’s stock price and its most likely growth trajectory, using historical models and after adjusting for analyst bias.
“The trading newsflow remains positive (and) the margins and returns will keep moving higher. I think there still is value - there are still attractive investments on a two- to three-year view,” Aynsley Lammin, analyst at Citi, said.
The sector, stripping out Persimmon and Berkeley which both recently announced significant cash return programmes, trades on 1.3 times forecast 2014 price/net asset value, down from a peak of about 1.5 times, Citi data shows.
Citi has “buy” ratings on Bellway, Persimmon and Redrow.
George Godber, manager of the CF Miton UK Value Opportunities Fund, recently increased his exposure to Berkeley, Barratt Developments and Redrow, seeing scope for the trio to rise 20-30 percent in the next six months to a year.
“We believe the sector will continue to receive significant levels of government support given the positive multiplier effect on the UK economy,” he said.
Housebuilders’ shares took a hit last week when robust UK economic data led to concern that interest rates would rise sooner than suggested by the Bank of England, which sees them at record lows until 2016. Clarity on how long interest rates will stay low may make people more confident to take out a mortgage.