Shares in Taylor Wimpey [TW], Barratt Developments [BDEV] and Persimmon [PSN] saw low single-digit increases on Wednesday as sector midcap Galliford Try [GFRD] forecast profits towards the upper end of estimates. The housebuilding sector has held up well in the lead-up to Brexit, with sales maintaining momentum from high employment, low base rates and the taxpayer-funded help-to-buy scheme, which accounts for as much as half of the orders at some of the companies. Taylor Wimpey, Persimmon and Barratt are all up between 22% and 26% since the end of last year.Taylor Wimpey's share price performance, CMC Markets, as at 15 February 2019
Brexit remains a concern, meanwhile, but a more manageable one as the prospect of a delay to the 29 March deadline increases. While a no-deal Brexit risks causing a “severe decline in consumer confidence and economic activity in general”, Galliford Try said in its results, a managed transition would have no “significant direct impact” on housebuilders’ businesses. However chief Peter Truscott did say how uncertainty beyond Brexit day was causing both private and public sector customers to hold out on projects until the divorce is settled.
Neil Wilson, Markets.com analyst, meanwhile says that “there is no time left for further negotiations” as he explains “there is nothing that can change over the next few weeks except that the looming deadline will force MPs hands”. “There is yet a tremendous risk that the UK leaves without a deal, but the deadline could change,” he added.
“There is yet a tremendous risk that the UK leaves without a deal, but the deadline could change” - Neil Wilson, Markets.com analyst
Britain’s economy has been showing its first signs of a Brexit-induced slowdown, growing only 1.4% in 2018, its slowest rate in six years. But housebuilders are maintaining their confidence and to an extent so are analysts, who are holding median price targets of 7% gains for Persimmon and Barratt, 12% for Taylor Wimpey and a staggering 38% for Galliford Try.
Britain's economic growth in 2018
“Our mix of residential development creates a robust proposition in more uncertain markets,” said Galliford Try. In addition, the Bank of England has signalled it will keep rates steady, particularly in case of a Brexit hit to consumers. Inflation meanwhile has slowed down, meaning households can direct more cash flows towards deposits.
While 29 March is likely to be a watershed moment for housebuilding stocks, a number of analysts agree that share prices in the market have been knocked too low. However, forecasts vary around how much they could bounce back, especially considering that the help-to-buy scheme is set to end in 2023.
“We have been forecasting a slow fade on profits after 2018 for some time on the back of weaker pricing and falling margins, but we now believe that the impact will be greater than we previously modelled,” Shore Capital’s Robin Hardy said.