Investment View: Time to cash in on the expensive housebuilders

These companies have been winners on the stock market this year. It may not last for long
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The Independent Online

All those property shows. What happened to them then? Kirstie Allsopp is presumably spending more time in her "hice" now that the lure of becoming an amateur landlord is no longer so enticing and property shows produce grim laughter from many of those who were sucked in before the financial crisis.

House prices are static or falling in much of the country with the exception of premium parts of London, where you have to be a hedge-fund manager or an Arab sheikh to buy property and one of their trustafarian kids to even think about renting.

That's not to say all property-based investments are losers, or out of reach. Take housebuilders and their shares. It might surprise you, but these companies have been unabashed winners on the stock market this year. That may not last for long.

Last week demonstrated the sector's strength. It was rounded off with two upbeat sets of results from two of the smaller members of the tribe.

Berkeley, which concentrates on London and the South-east, was the one which really opened eyes. The company reported a 41 per cent rise in profits to £142m and said it would pay its first dividend since 2008.

The results needed to be good to support a share price that has been rising all year and which is now looking decidedly expensive.

Trading on twice the "book" value of its assets (unsold homes, land etc) and 12.4 times earnings for the year ending April 30, it isn't really representative of the sector.

The group beat forecasts across the board. The company looks to be in very good shape so expect more good news when it comes to that reinstated dividend. All the same, for me the shares are pricey enough. I'd be inclined to buy only if and when they show any signs of weakness in the coming months.

A more representative company is Bellway, which offered a trading statement ahead of its next set of interims although it too turned in a creditable result. Government schemes to encourage mortgage lending with a view to kick-starting the housing market have not won universal acclaim but they are having an effect, at least according to this homebuilder.

Bellway said its customers' ability to access mortgage finance has "improved slightly as a result of the government's NewBuy indemnity scheme". Reservations were up 6 per cent on last year to 100 a week, while average selling prices were 4 per cent higher at £195,800.

The shares are on a price-to-book value of 1.1 times and trade on 13.2 times forecast earnings for the year to July 31 with a prospective yield of just 2.4 per cent, although the latter is pretty good. All the same, even at that price, the shares are looking expensive. Take profits because what you have to remember is that banks' reluctance to lend is likely to outlast government schemes to encourage them to do so. The cheap land won't last forever either.

For the same reason I'd take profits on the sector's big dog, Persimmon Homes. It's been doing very nicely and I said buy at the beginning of the year when I last looked at it with the shares standing at 506p. Those shares used to trade on a discount to book value and looked cheap. Now nearer 800p they trade on a substantial premium (1.3 times) and look expensive. There's not much in the way of yield to make it worth sticking with the stock and at 15 times this year's forecast earnings I'd recommend selling now.

The same holds for Taylor Wimpey. Its shares trade on 1.1 times book, 16 times earnings. They might offer a shade more value than Persimmon, but have been similarly frothy. Take profits. Barratt, meanwhile, is the one that still sits on a discount compared with assets but given the run its shares have been on there's no reason to do anything other than cash in.

The stock market, generally, is probably due for a correction sooner or later and these stocks, heavily influenced by economic performance and sentiment as they are, are not places I'd want to be medium term.

There is an undersupply of housing in this country, it's true, and long term the sector is not a bad bet with most of its members having largely successfully refinanced themselves a few years ago. When the dust has settled and the shares have assumed a more realistic valuation in the New Year, I'd be prepared to look again.