'Take profits' on UK housebuilders after strong run, says Credit Suisse

Credit Suisse has downgraded its rating for the UK housebuilding sector from 'overweight' to 'market weight', telling investors that it is time to take profits.After the "very significant move" in share prices and valuations across the sector, the bank said this is "as good as it gets", removing its positive stance on housebuilders which it had held for the past three years."To be absolutely clear we are not calling the top of the UK housing cycle, rather we are calling the top of the equity story, as we believe current valuations already factor in substantial future growth in the next two years," said Research Analyst Harry Goad.Goad said that the key barometer of valuation for the sector, the average price-to-tangible net asset value (P/TNAV) ratio, now stands at 1.9 which is almost level with the 2007 peak and well above the long-term average P/TNAV multiple of 1.2. As such, he said he sees downside risk to share prices given that the market is currently pricing in a "best-of-all-possible-worlds" scenario.Goad said he is concerned about the following fives issues on the horizon: land valuations becoming more competitive; rising mortgage costs; political risk; limited upside to capital returns; and build cost inflation. "We recognise we may be a little early on this call, but given the huge performance in sector share prices over the past three years and the potential for sentiment to turn very quickly, we suggest, when considering the risk-reward balance, that it is prudent to take profits now."Credit Suisse has cut its recommendations for Barratt Developments, Bellway, Persimmon and Taylor Wimpey from 'outperform' to 'neutral', and left both Berkeley and Bovis Homes at 'neutral'.BC