UK house prices hit yet another record this month as a record level of housing demand and a lack of supply pushed the market higher.
According to Rightmove, the average asking price in April hit £286,133 beating the previous high in June 2014.
This puts Persimmon (LSE: PSN), Taylor Wimpey (LSE: TW), Barratt Developments (LSE: BDEV) and Bellway (LSE: BWY) in an interesting position.
Indeed, after spending several years struggling to recover from the financial crisis, these homebuilders are now struggling to keep up with demand.
However, due to their cyclical nature, the homebuilders aren’t suitable for every investor. But with demand soring and supply shrinking, homebuilders’ earnings are set to rocket over the next few years.
Crunching numbers
Persimmon has already reported a strong start to 2015. After the first 15 weeks, total forward sales, including legal completions, are 7% higher than last year at £2bn. Further, 85 of the 120 new sites planned for the first half of 2015 have received planning permission.
Based on these initial figures, City analysts expect Persimmon to report earnings growth of 18% this year, which puts the company on a forward P/E of 11.9. The company is set to offer a dividend yield of 5.7% this year.
Just like Persimmon, Taylor has also reported a strong start to the year and the company is trading at an attractive valuation.
Analysts expect Taylor to report earnings per share of 14.5p for 2015, which puts the company on a forward P/E of 11. What’s more, Taylor currently supports a dividend yield of 5.7%.
Six-year high
Barratt’s half year results for the year ending 31 December 2014 showed show housing completions at the highest level in six years.
This record number of completions, combined with a rise in operating margins from 11% to 14.2%, enabled Barratt to report a 60.6% jump in profit from operations during the second half of last year.
City analysts expect Barratt’s earnings to jump a further 39% this year. The company is currently trading at a forward P/E of 12.3 and Barratt’s shares currently support a dividend yield of 4.4%.
Bellway’s interim results for the half year ended 31 January 2015 showed similar strength. Year-on-year the group’s profit before tax surged 53%, earnings per share jumped 56% and return on capital employed rose from 17% to 22.8%.
Based on these figures the company is trading at a forward P/E of 9.3 and PEG ratio of 0.3. Bellway is set to offer a dividend yield of 3.5% this year.
