Goldman starts coverage of six UK housebuilders with 'constructive' outlook

(Sharecast News) - Goldman Sachs initiated coverage of six UK housebuilders on Monday with a constructive outlook "as a better operating environment drives improving volume growth and expanding margins".

Goldman said the earnings per share growth acceleration and medium-term return on capital invested recovery it forecasts does not appear fully captured in the sector valuation, with P/B ratios at 10-year lows and price-to-earnings in line with the historical average.

"We expect an improving environment for the UK Home Builders against the backdrop of better affordability as falling interest rates provide some relief," the bank said.

"Our economists forecast housing price growth of 3.7%/3.9% in 2026/27 on BoE rate cuts through 2026.

"The UK government's 1.5mn 5-year housing target and a significant structural undersupply of housing coupled with population growth provide tailwinds for the sector."

Goldman said leading housing economic indicators are inflecting, including private housing starts, mortgage volumes and transaction volumes.

"Despite near-term UK budget concerns, house price growth is starting to inflect, with October posting +0.6% increase m/m (Halifax House Price Index), the highest rate since January," it said. It also noted that affordability has improved to 38.1% of income spent on mortgage repayments at Q2 25, from 42.9% in 2023.

"We expect a continuation of this trend as the BoE cuts rates, with our economists' forecasts implying mortgage rate declines ranging from -78bps to -86bps by Dec-26 and market rates implying more modest decreases of -4bps to -16bps (2 & 5yr at 75-95% LTV)," the bank said.

It started coverage of Barratt Redrow, Persimmon and Vistry at 'buy' with price targets of 449p, 1,446p and 731p, respectively.

As far as Barratt is concerned, it said scale across product, brands and locations provides flexibility to respond to demand, and the bank forecasts higher volume growth of 7% per annum for FY26-30 versus a 5% peer average. This is driven by achievement of its more than 500 outlet growth target in FY29/30.

For Persimmon, it pointed to exposure to Northern regions of the UK where it expects continued outperformance and the fact it offers the most affordable priced product, with average selling prices 11% lower versus peers on average.

Goldman said that as the largest affordable housing provider, Vistry is well-placed to capitalise on improving affordable housing sector dynamics. "We forecast revenue growth moving to the top end of its 5-8% target into FY27/28," it said.

GS started Berkeley at 'sell' with a 3,714p price target. It pointed to constrained medium-term earnings growth given the low viability of residential London development, which is burdened by slower house price growth, more regulation and low affordability.

It also said the Build to Rent strategy will take time to contribute to earnings with capital recycling also taking longer.

Goldman initiated coverage of Taylor Wimpey and Bellway at 'neutral' with price targets of 109p and 2,844p respectively.