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Morgan Stanley UK Housebuilders Research Summary

Core Outlook

• Cyclical and Structural Tailwinds: Lower interest rates near term and planning reforms mid-term will align to support housebuilding volumes, addressing the housing shortage (370k homes/year vs. 218k built in 2024).
• Market Overweight: The market undervalues the opportunity, with UK housebuilders trading at 10th percentile P/B (avg 0.9x) and implied cost of equity ~300bps higher than CAPM.

Key Recommendations & Price Targets

Company	Rating	Price Target (GBP)	Upside %
Barratt Redrow	Overweight	610	+30%
Persimmon	Overweight	1,590	+19%
Vistry Group	Equal-weight	730	+12%
Berkeley Group	Equal-weight	4,550	+8%
Taylor Wimpey	Equal-weight	120	0% (neutral)

Key Metrics & Growth

• 2027 EPS CAGR: 13% (avg across coverage)
• Volume Growth:
  • Barratt Redrow: +11% vs. consensus (11.3% avg)
  • Persimmon: +16% (14.7% avg)
• EBIT Margins: Persimmon +129bps vs. consensus (2027)

Valuation Approach

• Apply P/E multiples (12-18x) to FY27/28 earnings, reflecting planning reform benefits.
• Discounted equity cost: 10-14% vs. CAPM (avg 13.8%)

Key Risks

1. Planning reform delayed/eclipsed
2. Interest rate hikes
3. Persistent affordability issues
4. Regulatory burdens (building safety, FHS standards)
5. Land bank valuation challenges

Structural Opportunities

• Planning Reform: Mandatory targets (1.5mn homes), compulsory purchase powers, grey belt unlocking
• Affordability: Focus on low-price segments (PSN, BTRW)
• Volume Plays: Multi-unit sales (Vistry), first-time buyer exposure (PSN)

Critical Assumptions

• 2.75% BoE terminal rate by mid-2026
• 18-22% effective tariffs by 2025
• 90% completion volume recovery by 2027 vs. 2024 baseline

Exhibits Reference

• Planning applications at record lows
• Volume recovery graphs
• Detailed valuation sensitivity
• Regulatory reform timelines
• Balance sheet strength (normalized cash positions)