The valuation of U.K. home builders likely already includes the impact of a roughly £2 billion levy for cladding remediation following the deadly Grenfell Tower fire, a leading broker said on Monday.
Analysts at JPMorgan say there are 465 buildings with a cladding system used on Grenfell Tower that will need replacement, citing data from the U.K. government. Of those, 52% have completed remediation, and the government estimates 85% of identified buildings will have completed remediation works by the end of 2021. Another 1,400 buildings using a different cladding system also may need remediation.
The total cost may lead to a 2% to 4% higher tax rate for 10 years. But the analysts say this is partly discounted already and unlikely to be a major concern, as they highlighted the government’s continued support for the sector and solid demand trends. The analysts upgraded Taylor Wimpey
to overweight from neutral on the belief earnings momentum will outperform the sector, while downgrading Barratt Developments
to neutral from overweight after a strong run.
Separately, analysts at Jefferies upped Crest Nicholson
to buy from hold and lowered Bellway
to hold from buy. “With an arguably more robust housing market post-COVID (in terms of desires to buy a new home, the return of house price inflation) we believe the cheaper [small to midcap] housebuilders offer increasing attraction,” they said.
Crest Nicholson shares rose 3% and Taylor Wimpey rose 1%. Barratt Developments fell 1% and Bellway fell marginally. Persimmon
The FTSE 100
slipped 0.2% afternoon trade, with the index largely inoculated from the forced liquidation of Archegos Capital Management, having neither lending banks nor the fund’s top holdings in the index.