Five stock picks to play the UK property recovery

13th September 2013

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The UK property party is back on and even for those not looking to snap up a new home, there are other ways to play the rally writes Philip Scott.

Following a prolonged period in the doldrums a spate of factors are now driving a considerable recovery in the sector.

Growing confidence in the UK’s improving economy, a benign interest rate environment and the Government’s initiatives such as its so-called ‘Funding for Lending’ scheme are all playing their part in the renaissance.

The Royal Institute of Chartered Surveyors declared that UK property price increases witnessed their highest reading in almost seven years. In addition, the amount of mortgages agreed with UK homebuyers during July was more than 20% higher than a year ago.

Notably mortgage advances to first-time buyers climbed to 25,300 over the month, a 40.6% year-on-year rise and 4.4% over the month, while advances to existing home owners amounted to 32,000 which was up by 9.2% year-on-year and by 11.9% month-on-month.

According to numbers from Halifax, property prices rose by 5.4% in the year to August, the highest annual rate since June 2010.

The recovery is spilling over into the stock market, and many firms have seen their share prices rocket over the past year, where the UK’s Household Goods & Home Construction sector rose by 36% in past 12 months.

Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers says: “While house-builders and other property related stocks have enjoyed a strong rise, it is difficult to judge how much of a recovery has been already priced into these stocks. But we cannot rule out further gains, especially when we take into account the Government’s initiatives however investors have to judge for themselves how much risk they are willing to take on.”

We look at five stocks to play for a sustained recovery in the UK property market.

Home Retail Group

The consensus towards the FTSE 250 listed group has strengthened and is now deemed a ‘hold’. The Argos and Homebase owner has enjoyed a bumper share price boost, rising 68% in the last 12 months and by 26% in just half that time. In a trading statement issued on 12 September, the group’s chief executive Terry Duddy asserted that the firm had enjoyed a good first half driven by a positive sales performance in both businesses.  Overall Homebase traded well through its peak period, while Argos continues to build on its digital leadership with mobile commerce now accounting for 17% of Argos’ total sales.  In a statement, Duddy said: “At this stage of the financial year, we expect to deliver full year group benchmark profit in line with current market expectations but, as always, the outcome will depend upon Argos’ peak trading period. Whilst we continue to expect consumer spending to remain subdued, we approach the important Christmas trading period in good operational shape.”

Taylor Wimpey

Like Home Retail, the sentiment has improved in regards to Taylor Wimpey. The FTSE 250 listed UK-based house-builder, which also has operations in the US and Spain has witnessed its shares soar by 90% over the last year, with a 25% rise achieved in the last six months alone. In its half-year results, it announced a it had notched up a record order book of £1.3bn, up from £960m a year earlier, marking a 35% rise in value and 24% increase in volume. But despite the robust share price gains, sentiment says there is more to come as the consensus towards the stock has improved with brokers now calling it a ‘buy’.

Mortgage approvals surge by 21% in a year

Equity heavy home-owners in-line for top mortgage rates

Barratt Developments

The FTSE 250 constituent, is one of the UK’s best known house-builders and investors have been taking further notice recently as its shares have firmed by 87 per cent over the past 12 months. Right now brokers are calling the group a ‘strong hold’. In its final results, announced on 11 September, chief executive Mark Clare declared the group had “significantly improved results” where revenues were up by 12.2% for the full year to £2.6bn. He said: “We are seeing the housing market recovery starting to spread beyond London and the south east with a 29.4% increase in our average net private reservation rate across the Group. We have already increased our completion volumes by over 20% in the past two years and expect to deliver around 45,000 new homes over the next three years.”

Travis Perkins

The building materials supplier and owner of Wickes, makes its revenues via the sale and hire of tools. Again, the FTSE 100 listed firm has been a high riser over the past year, gaining 51%, some 22% of which was achieved in six months. While the broker consensus is calling the firm a ‘strong hold’, its appeal is rising as Citi recently said it viewed the group as a straight way for investors to play the UK housing market recovery and upgraded its rating from ‘ neutral’ to ‘buy’.

Wolseley

Plumbing giant and FTSE 100 member is a ‘buy’ say traders. Wolseley, 26% stronger over the past year, specialises in the manufacture and sale of construction equipment and products for heating and plumbing system installations. But acquisitions mean North America is now the UK firm’s biggest market, followed by Europe. Swiss broker UBS is bullish towards the group and is anticipating 11% comparable growth for Wolseley’s US business in the fourth quarter against a previous 8.7% forecast according to reports.

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