- MJ Gleeson shares slide as land sale slips into next financial year
- Bellway reaffirms outlook for current year but takes cautious view on next one
- Housebuilders’ profit and dividend forecasts continue to suffer downgrades
- Only good news is how lowly valuations already reflect a gloomy outlook
“A delayed land sale from MJ Gleeson and a cautionary outlook statement from Bellway only serve to deepen the gloom that currently envelops the UK housebuilding industry,” says AJ Bell investment director Russ Mould.
“Analysts are cutting their earnings forecasts once more as hopes for a swift recovery fade and the only good news on offer to investors in the sector is that valuations are already depressed and pricing in a negative outlook.
Source: Marketscreener, consensus analysts’ forecasts for Barratt Redrow, Bellway, Berkeley, Crest Nicholson, MJ Gleeson, Persimmon, Taylor Wimpey, and Vistry.
“The go-go days of Help-to-Buy, government support schemes and zero interest rates are now just a distant memory for the housebuilders. Instead, they must now face tighter regulation, cladding compensation payments, input cost inflation, higher interest and mortgage rates and higher government taxes on property transactions.
“The latest complication is the war in the Middle East, as higher oil and energy prices crimp consumers’ confidence and spending power, and limit the Bank of England’s room for manoeuvre when it comes to interest rate cuts.
“Analysts still expect a rebound in aggregate operating profit across the listed builders in 2027 and 2028, helped by the absence of any fresh cladding remediation and compensation costs. But it is noticeable how 2027’s forecast operating income across the sector only just matches that of 2014, when Help-to-Buy had started to hit top gear, and also how overall profit margins are expected to come in no higher than they did in 2011.
Source: Company accounts, Marketscreener, consensus analysts’ forecasts for Barratt Redrow, Bellway, Berkeley, Crest Nicholson, MJ Gleeson, Persimmon, Taylor Wimpey, and Vistry.
“Bellway expects to meet analysts’ consensus forecasts for its financial year to June, but weaker demand in April and May is clouding the outlook for the next 12 months, to June 2027.
“Management is responding with incentives and bulk sales, as this will help completions, release working capital from the balance sheet and boost cash. But these moves do not help near-term margins, especially when coupled with input cost inflation.
“Builders’ fresh focus on cash is reflected in their more cautious approach to buying land, a policy flagged by Barratt Redrow, Berkeley, and Taylor Wimpey in spring’s downbeat outlook statements.
“This is filtering through to MJ Gleeson, where a delay in one major land sale, and two small ones, means that profits for the year to June 2026 will come in at less than half of consensus forecasts. Management still believes the transactions will take place in the new financial year, but the timing delay reflects the caution that is gripping the industry.
“If there is any good news on offer, it is that MJ Gleeson’s shares are falling by an awful lot less than profit forecasts, while Bellway’s stock is shrugging aside its update. Both share prices are already way below the all-time highs reached in the very final stages of the 2010s, when profits were booming.
Source: LSEG Refinitiv data.
“The overall building sector trades on depressed valuations, too. This is evident from how the listed builders in aggregate trade on barely 0.7 times historic tangible net asset, or book, value per share. This is way below the 2.0 times multiple that prevailed in the middle of the Help-to-Buy boom of a decade ago.
Source: Company accounts, LSEG Refinitiv data for Barratt Redrow, Bellway, Berkeley, Crest Nicholson, MJ Gleeson, Persimmon, Taylor Wimpey, and Vistry, as of the June of each year.
“This suggests that expectations are low and it may not take much for sentiment to turn, especially as the housebuilders are sat on a combined net cash pile, in stark contrast to the net debt position they carried as they lurched into the downturn of 2007 to 2009 when the Great Financial Crisis struck.
“Management teams continue to focus on cash, too, as lower land sales and ever-decreasing dividend forecasts imply – although the latter also reflects downgrades to profit forecasts.
Source: Marketscreener, consensus analysts’ forecasts for Barratt Redrow, Bellway, Berkeley, Crest Nicholson, MJ Gleeson, Persimmon, Taylor Wimpey, and Vistry.
“The builders are therefore hunkering down as they wait for an upturn, and patient, contrarian shareholders may elect to do the same, given the prevailing lowly valuations and political, economic, and social benefits of getting the housing cycle back on track.
“The tricky bit is finding what will cause the cycle to turn and when. Only investors can decide for themselves how likely interest rate cuts, new government incentive schemes, lower taxes, looser regulations, or a combination of all four really are.
“The prospect of government intervention never seems to be far away from any industry, and without any policy initiatives the solution may be wage growth which proves sufficient to improve affordability and boost demand.
“Failing that, land and house prices may need to actually fall, given how the average UK house price represents almost seven times the average UK salary. No government is likely to be keen on seeing that, but in such a scenario the housebuilders’ share price discounts to book value could close not because their share prices go up, but because asset valuations fall.”
Source: Company accounts, Marketscreener, consensus analysts’ forecasts, LSEG Refinitiv data.
