JPMorgan downgrades Taylor Wimpey and Vistry, keeps Persimmon as 'top pick'

JPMorgan said on Monday that Persimmon remains its "top pick" in the UK housebuilding sector, as it downgraded its stance on Taylor Wimpey and Vistry to ‘underweight’ from ‘neutral’.

The bank said that in light of rising mortgage rates and build cost inflation, it had taken a preliminary look at its 2027 estimates where after taking these factors into account, it cut its earnings forecast by 20% on average - excluding Crest Nicholson - and now looks for around 100 basis points of margin compression versus previous expectations of 40bps expansion.

"Furthermore, with political uncertainty still a factor, we take a look at Andy Burnham’s rhetoric on housing with potentially the biggest risk being his focus on prioritizing social housing, though we would expect the housebuilders to push back on this," it said.

On stock-selection, JPM said that ‘overweight’ rated Persimmon continues to be its preferred name in the space owing to the lowest average selling price, geographic positioning as well as vertical integration which should offer some protection against build cost inflation.

It downgraded Taylor Wimpey and Vistry, with its revised estimates 15%/33% below Street expectations for 2027, respectively.

"Moreover, for Taylor Wimpey, we see risks to consensus due to its exposure to the South of England where pricing continues to come under pressure and consensus looks too optimistic on margins for 2027E looking for +40bps expansion (versus JPMe 100bps dilution); we also think the group’s dividend policy may be unsustainable in light of continued earnings decline," it said.

As far as Vistry is concerned, JPM said it already see risks to 2026 estimates as it thinks the market is likely underestimating how many incentives the company is offering as it seeks to improve cash generation by reducing inventory. In addition, into 2027 it sees relatively greater impact from build cost inflation given that for the group’s partnership business, revenues/contracts are agreed ahead of time.

"Also, higher rates may have an adverse impact on the PRS market and Andy Burnham has previously called for rent freezes, and so political uncertainty may impact appetite for PRS investment in this market, which is a key point-of-sale for Vistry," JPM said.

JPM cut its price target on Taylor Wimpey to 70p from 100p and on Vistry to 210p from 430p. The price target for Persimmon was cut to 1,430 from 1,800p.

Vistry was also in focus on Monday following a Financial Times report the housebuilder has offered voluntary redundancies to employees as it tries to preserve cash to shore up its business.