On Monday, RBC Capital maintained its Underperform rating on Berkeley Group (OTC:BKGFY) Holdings Plc (BKG:LN) (OTC: BKGFF) stock, with a steady price target of GBP49.50.
The firm acknowledges Berkeley Group's strengths as a business, noting its exceptional management and the unique visibility of its earnings compared to other housebuilders.
This distinction, according to RBC, has positioned Berkeley as a go-to stock for stability within the sector, especially evident after the Budget announcement. While the sector saw a decline of over 20% since the Budget, Berkeley's shares have experienced a less significant drop of less than 10%.
Despite the company's resilience in turbulent times, RBC Capital's analysis suggests that mainstream housebuilders may outperform Berkeley Group in 2025. The firm anticipates an improvement in the housing market conditions during that year, which could lead to more positive surprises from Berkeley's peers who are more sensitive to changes in mortgage rates. RBC Capital's stance is based on the belief that these mainstream housebuilders could benefit more in an improving market.
RBC Capital further explains the relationship between mortgage rates and house prices, estimating that a 100 basis point reduction in mortgage rates could equate to a 10% decrease in house prices. This correlation is particularly relevant for mainstream housebuilders and could be a pivotal factor in the expected market dynamics for 2025.
The firm projects that mortgage rates will likely decrease in the upcoming year, which could favor the mainstream housebuilders over Berkeley Group.
Although RBC Capital commends Berkeley Group for its solid performance and management, their long-term perspective leads them to maintain the Underperform rating.
They emphasize that while Berkeley Group has demonstrated a strong performance following the Budget, their analysis supports the potential for mainstream housebuilders to achieve greater performance improvements in the face of changing mortgage rates and market conditions.
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