Boom time continues at Barratt and Marshalls

The housing market is in rude health in 2017 – who'd have predicted that 10 months ago? The Brexit vote decimated London-listed housebuilders and its associated sectors, with predictions of carnage as building work ground to a halt.

In hindsight, however, that indiscriminate sell-off was a massive over-reaction - and kudos to those canny investors who remembered one of Warren Buffett's rules of investing, "be greedy when others are fearful".

This was confirmed Wednesday morning when a trio of companies involved in building your house – brickmaker Michelmersh, paving stone manufacturer Marshalls and housebuilder Barratt Developments – reported strong year-to-date trading figures.

Michelmersh reported business in line with expectations but, after a strong 40% rally since February lows of 48p, the share price failed to react and traded flat.

Marshalls, meanwhile, jumped 5% to a record high 412p on 6% higher revenues and sales growth that beat analyst expectations, leading one broker to raise his price target on the stock.

Clearly, though, big news of the day comes from £6 billion housebuilding colossus Barratt. The stock followed Marshalls higher today, this time 4% to a 15-month high after a "strong" first four months of the year.

Barratt follows Persimmon and Taylor Wimpey in beating analyst expectations, and continues the sector's amazing post-referendum recovery. The chart below shows how the five housebuilders with the biggest market cap have thrashed the FTSE 100 since 24 June.

NB. Key: A= Barratt, B= Persimmon, C= Taylor Wimpey, D= Bellway, E= Berkeley, F= FTSE 100.

Barratt, 90% up since its 6 July bottom of 326p, said pre-tax profit for the full-year would come in at the increased range of previous guidance at around £733 million. This is a beat of around 4% on both UBS and Morgan Stanley's estimates of around £700 million.

Average selling prices look to be ticking up, according to both Barratt and other housebuilders as the benefit from underlying house price inflation.

Meanwhile, an expected delivery of 17,350 homes for the full-year would represent the highest number of completions in nine years, with forward sales of £3.2 billion up 13% year-on-year and at record levels.

The firm's balance sheet looks strong, with net cash of around £600 million, and it expects to "at least meet our minimum hurdle rates of 20% gross margin and 25% site return on capital employed (ROCE)".

CEO David Thomas spoke of a "strong market backdrop", seen also in its competitors' figures. A fortnight ago, Persimmon and Taylor Wimpey also reported growth in both sales and forward order books.

Despite this, analysts weren't rushing to re-think their target prices Wednesday , with UBS still ‘neutral'. Its 12-month target price of 597p now suggesting downside after shares breached the £6 barrier for the first time in over a year.

Morgan Stanley is more bullish, although its price target of 615p has been breached. Still, analyst Christopher Fremantle notes, trading on 1.8 times tangible book value (TBV), "Barratt remains the cheapest of the large volume housebuilders we cover, with more room to improve margins and returns".

A dividend yield of over 6% remains attractive, too – beaten only by Galliford Try and Taylor Wimpey. Next stop for Barratt is September 2015 highs of 650p, which is eminently achievable according to Jefferies' Anthony Codling, who calls them up a touch above £7.

Back to Marshalls, and we've mentioned previously how boss Martyn Coffey snapped up 10,000 shares when the price slumped to 212p in the referendum chaos.

We've noted how canny that looked earlier in the year when the firm announced a surge in annual profits. Well, his investment that day has almost doubled.  In that same article, we also pointed out the chart breakout, suggesting it "could herald further gains". It has.

So, where next for the UK's leading provider of landscaping products? Well, according to Panmure Gordon's Adrian Kearsey, the only way is up. The analyst has raised his full-year pre-tax profit forecast by 2% to £49 million and his target price 20% to 445p.

"The forward PE (18.3 times) is in line with the 10-year average," he explained. "With sales enjoying a good tailwind and given the operational leverage (augmented by self-help), we anticipate there is scope for the rating to move moderately higher."

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.