Barratt share price rises as Morgan Stanley lifts valuation

Barratt share price rises as Morgan Stanley lifts valuation
Written by:
Tsveta van Son
11th July 2019
Updated: 11th March 2020

Barratt Developments’ (LON:BDEV) share price has surged in London in today’s session as Morgan Stanley lifted its valuation on the stock. The move came after the blue-chip housebuilder updated investors on its trading yesterday, revealing that it expects its pre-tax profit to come in ahead of market expectations.

As of 14:45 BST, Barratt’s share price had added 4.45 percent to 609.82p. The shares are outperforming the broader UK market, with the benchmark FTSE 100 index currently standing 0.05 percent higher at 7,527.02 points.

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Morgan Stanley lifts Barratt’s valuation

Morgan Stanley lifted its price target on Barratt Developments from 625p to 675p, with an ‘overweight’ recommendation on the shares. Sharecast quoted the broker as commenting that ‘simply’ assuming volume growth of between three percent and five percent, as per the own company’s guidance, house price growth in line with inflation and a normalised price-to-earnings multiple of 10, then the shares might rise past 700.0p, equating to more than 20 percent potential upside.

“Our forecasts remain below volume guidance medium term given our expectation of a slowdown in demand (Exhibit 2), and are still below guidance on margins, given our expectation that flat house prices and sustained cost inflation will offset underlying margin improvement medium term,” the broker pointed out.

Other analysts on blue-chip housebuilder

Citywire meanwhile quoted AJ Bell’s Russ Mould as commenting that yesterday’s muted reaction to Barratt’s results suggested “some scepticism over the company’s ability to build on this achievement and could also reflect the fact that the better-than-expected performance is seemingly flattered by a large one-off sale to a joint venture party”.

Mould further noted that while profitability was improving as it cuts its London exposure, margins “are still running behind most of its peers”.

According to MarketBeat, the blue-chip housebuilder currently has a consensus ‘buy’ rating, while the average target for the Barratt share price stands at 661.54p.

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