UK homebuilders to benefit regardless of election outcome - Morningstar
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UK HOMEBUILDERS TO BENEFIT REGARDLESS OF ELECTION OUTCOME - MORNINGSTAR
UK homebuilders look set to benefit from the upcoming election, regardless of the outcome, according to Morningstar, which sees a housing market recovery drawing near.
"Announced affordable housing policies could offer tailwinds for homebuilders with significant exposure to the affordable and/or first homebuyer segments of the housing market," said Grant Slade, equity analyst at Morningstar in a note.
Both Labour and the Conservatives plan to provide financial support for first-time buyers, he said, and this is constructive for Morningstar's top pick in the sector, Persimmon PSN.L.
"...they are most exposed amongst our homebuilder coverage to this segment of the market as first-time buyers account for approximately 50% of sales," Slade said.
An index of FTSE 350 homebuilders .FTNMX402020 is up 3% this year so far, slightly underperforming the broader FTSE 350 .FTLC which is up 5.6%.
Green shoots are already showing in the UK housing market.
"UK house prices are rising again and there’s a marked retracement in mortgage approvals which point to a much-needed recovery in homebuyer confidence," Slade said.
Despite the improving sentiment, the team at Morningstar thinks the long-term opportunity in UK homebuilders is still underappreciated by investors.
UK homebuilder shares rallied in late 2023 on hopes of steep BoE rate cuts that never materialised, but they still look cheap, the team said.
"While we appear to be past the point of maximum investor pessimism in this housing cycle, UK homebuilders still screen attractively, trading at an average 26% discount to fair value in early June 2024."
(Lucy Raitano)
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