Are Berkeley Group Holdings plc, Bovis Homes Group plc and Taylor Wimpey plc a buy ahead of Brexit vote?

Is the current sell-off a buy signal for Berkeley Group Holdings plc (LON:BKG), Bovis Homes Group plc (LON:BVS) and Taylor Wimpey plc (LON:TW)?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Shares in Berkeley Group Holdings (LSE: BKG) fell by 2% this morning, after the group said that pre-tax profit fell by 1.6% to £530.9m last year.

Berkeley has been the biggest faller among the big housebuilders this year, dropping 20%. Investors are concerned about the risk of slowing sales to rich overseas buyers, especially if the UK votes for a Brexit.

Today’s results seem to confirm this risk. Berkeley says reservations during the first five months of 2016 were 20% lower than during the same period last year. Although this is partly due to a reduction in new launches ahead of the EU referendum, these figures suggest to me that Berkeley’s future profits could be at risk if the UK does vote Brexit on 23 June.

In my opinion, buying Berkeley shares today is a bet on a recovery in the London market after the referendum.

Current forecasts suggest Berkeley’s profits will rise sharply during the 2016/17 financial year. The firm’s shares currently trade on just 7.5 times 2016/17 forecast profits. Meanwhile, planned cash returns of £2 per year until 2021 mean that a forecast yield of 6.8% is also on offer.

Is this mid-market firm safer?

Not all housebuilders are equally exposed to the luxury London market, which depends heavily on overseas money to stay afloat.

In contrast to Berkeley’s reservation slump, Taylor Wimpey (LSE: TW) said in April that customer demand was up 14% compared to the same period last year. The firm’s order book contained 8,811 homes, a 7.5% increase from a year ago. In its April update, the group said that the EU referendum hadn’t affected trading during the first four months of the year.

Taylor Wimpey’s customers tend to be regular UK homeowners, many of which have benefitted from the Help to Buy scheme. The company’s current valuation is much less dependent on an uncertain future. Taylor Wimpey shares currently trade on 9.9 times 2016 forecast earnings, with a prospective dividend yield of 6.5%.

If you believe the UK economy will remain stable following the referendum, this could be a decent buying opportunity.

No discernible impact…

Like Taylor Wimpey, Bovis Homes Group (LSE: BVS) boss David Ritchie has made it clear that the referendum hasn’t had any negative effects so far. In an AGM statement in May, Mr Ritchie said that the referendum had had no discernible impact on our business”.

Shares in Bovis Homes look cheaper than those of many peers. The stock currently trades on a price-to-book value ratio of just 1.3, compared to 2.1 for Taylor Wimpey and 2.4 for Berkeley. One reason for this cheaper valuation is that Bovis’s operating profit of 17.3% is lower than the 20%-plus figures reported by the other two firms.

Lower profit margins mean that the company can’t generate as much profit from its assets. Bovis also offers a lower dividend yield. This year’s forecast payout of 45.3p equates to a 5% yield, versus 6.5%-plus at Taylor Wimpey and Berkeley.

However, Bovis shares have fallen by 11% this year and currently trade on a 2016 forecast P/E of just 8.1. Earnings per share are expected to rise by 16% in 2016 and by 14% in 2017. If the domestic housing market remains healthy, I believe Bovis could still offer value.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head has no position in any shares mentioned. The Motley Fool UK has recommended Berkeley Group Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

7%+ dividend yields! Here are 2 of the best UK shares to consider buying in June

This Fool has been searching for UK shares with the best dividend yields. Here are two he thinks investors should…

Read more »

Investing Articles

5 FTSE 100 shares to consider buying for passive income right now

The FTSE 100 is having its best start to the year for ages, and that's pushing the top dividend yields…

Read more »

Investing Articles

One overlooked cheap share to tap into the year’s hottest theme?

This Fool describes the key things to think about when investing in copper stocks and analyses one cheap share to…

Read more »

Investing Articles

A cheap FTSE 100 stock that’s ready for a dividend hike in 2024

This banking giant is one of the FTSE 100's greatest dividend stocks. And at current prices, our writer Royston Wild…

Read more »

Growth Shares

Is the BP share price set to soar after Michael Burry invests in the firm?

Jon Smith takes note of a recent purchase from the famous investor behind The Big Short and explains his view…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

I’d focus on Kingfisher now after the Q1 report leaves the share price unmoved

With the share price near 262p, is the FTSE 100’s Kingfisher a decent investment now for dividends and business recovery?

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

£500 buys me 493 shares in this 7.4% yielding dividend stock!

The renewable energy sector remains out of favour. As a result, there are some high-yielders around, including this dividend stock.

Read more »

Road trip. Father and son travelling together by car
Investing Articles

If I’d put £10k into Tesla stock 2 years ago, here’s what I’d have now

Tesla stock has fallen in the past few years. But the valuation looks temptingly low now, as we approach a…

Read more »