June 19, 2015 – UBS has hiked its target price for Berkeley Group from 3,400p to 3,900p and reiterated a ‘buy’ rating, saying all operating metrics at the housebuilder are in “excellent shape”.
“Berkeley is now entering into the delivery phase of its strategy, with material earnings and cash generation expected over the coming three years, harvesting the rewards of a counter-cyclical and disciplined land buying strategy since 2009,” UBS said.
In addition to Berkeley’s commitments to deliver an attractive dividend until 2021, with a base yield of 4.2% per annum, UBS estimated that excess capital generation implies the potential for a total annual return of 10%.
“However, we would highlight that this will likely only unfold in FY17E and beyond, given the working capital requirements in the short-term as revenues ramp up,” the bank said.
UBS said that while there are some political risks ahead such as the UK referendum on EU membership and mayoral elections in London, Berkeley should still be able to generate excellent returns over the next few years.
The bank has lifted its earnings per share forecasts for 2016-2020 by an average 12.5% “with potential risks to the upside”.
The shares were up 0.2% at 3,383p this morning, pushing the weekly gain to nearly 7%.