Housebuilding stocks are ‘cheap’
Davy Stockbrokers analyst Florence O’Donoghue, in a sector review entitled “Spring Jitters” circulated to clients, concludes: “The housebuilding sector’s rating is at its lowest since 1975 to 1979. However, the [overall] market had a similar rating back then, whereas the market currently is at its highest rating over the series examined.
“Notwithstanding any fears on the housing market, it is hard not to come to the conclusion that housebuilding stocks look extremely cheap at present.”
Ms O’Donoghue said Davy remain supporters of the housebuilding sector: “Our view is that its current rating all but assumes a housing crash, which, despite recent statements from respected commentators, is by no means a certainty. That the UK MPC (Bank of England) kept rates unchanged at its last meeting suggested it is reasonably relaxed about the housing market.
“Current trends from home suggest the housebuild in Ireland is now likely to match last year’s phenomenal levels. This is very positive for those who supply the construction industry” she noted.
Ms O’Donoghue said Grafton and Heiton stand out in this regards.
“Heiton, in particular, is Ireland exposed. Over 90% of the group’s profits are derived from Ireland. This augurs well for the group, whose new financial year begins in May,” she added.
Ms O’Donoghue said there are understandable fears the residential housing market is over stretched, as house price inflation in Ireland and Britain runs at a scorching pace, with the absolute level of household debt at record levels.
“The ratio of average house price to average earnings is much higher than it has historically been. However, affordability, as defined by the percentage of post-tax income required to service a mortgage, remains comfortable by historic levels,” she said, which is thanks to low interest rates.
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