By Steve Goldstein
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 /zigman2/quotes/208623755/delayed UK:TW +1.29% to overweight from neutral on the belief earnings momentum will outperform the sector, while downgrading Barratt Developments /zigman2/quotes/209812640/delayed UK:BDEV +0.10% to neutral from overweight after a strong run.
Separately, analysts at Jefferies upped Crest Nicholson /zigman2/quotes/207992108/delayed UK:CRST -1.04% to buy from hold and lowered Bellway /zigman2/quotes/208360300/delayed UK:BWY +0.27% 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 /zigman2/quotes/206444744/delayed UK:PSN +1.04% fell 2%.
The FTSE 100 /zigman2/quotes/210598409/delayed UK:UKX +0.76% 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.
Engineering group Renishaw /zigman2/quotes/200921567/delayed UK:RSW +1.72% rose 6% as Bloomberg News reported it has attracted interest from Danaher /zigman2/quotes/210555154/composite DHR +0.58% and Hexagon /zigman2/quotes/203909320/delayed SE:HEXA.B +1.77% .