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Jefferies has reaffirmed its optimistic outlook on UK housebuilders, noting significant upside potential in share prices due to an improving interest rate environment and anticipated government changes to planning regulations. Despite the robust share price gains since October of last year, Jefferies believes there is still considerable room for growth, especially when considering projections for fiscal year 2026.
The bank's analysis indicates that current share prices are beginning to factor in 2025 expectations, but they have yet to fully reflect the potential for 2026. According to Jefferies, even a modest increase in house prices could lead to substantial gains in share prices. The analysis suggests that a 3% annual increase in house prices over two years, coupled with a delayed reaction in building costs, could result in a 40-80% rise in share prices.
Moreover, Jefferies highlighted the potential for a significant reset of return on equity (ROE) within the sector, potentially returning to 2019 levels. This reset could be driven by new land opportunities arising from the government's anticipated changes to planning regulations, which could, in turn, lead to a doubling of share prices in the sector.
In light of these findings, Jefferies has resumed coverage of Bellway (LSE:BWY) with a ‘buy’ rating, setting a price target of 3,646p. Bellway has also been added to Jefferies' "top picks" list, alongside other major housebuilders like Taylor Wimpey and Persimmon.
Jefferies noted that Bellway's aggressive land acquisition strategy between 2021 and 2023, along with continued investment in work-in-progress, positions the company particularly well to capitalize on any rebound in customer demand. The bank also emphasized Bellway's strategic move into acquiring land, which could allow the company to benefit significantly from the expected new cycle of land investment that the government’s planning policy changes might trigger.
Jefferies further suggested that if Bellway can meet its previous completion targets, the company could experience the greatest volume growth, operational leverage, and improvement in ROCE (Return on Capital Employed) among UK housebuilders. Trading at 1.1 times its projected 2025 price-to-net tangible asset value (P/NTAV), Bellway is currently considered one of the most attractively priced housebuilders in the UK, according to Jefferies.
