RBC Capital Markets moved Berkeley Group Holdings (LON:BKGH) to an "outperform" rating from "sector perform" on Thursday, even as it reduced its near-term price target and trimmed profit and volume forecasts in response to Berkeley's strategic update that preceded a roughly 10% fall in the stock.
The broker set a new price target of 3,850 pence, down from 3,900 pence, by using a 1x price-to-tangible net asset value (TNAV) multiple applied to the average of its FY2026 and FY2027 TNAV estimates of 3,788 pence and 3,943 pence respectively - a multiple that the analyst said aligns with Berkeley's trough during the Global Financial Crisis.
Anthony Codling of RBC Europe Limited explained the recalibration, noting the bank had moved the stock to Sector Perform only 75 minutes before Berkeley issued its trading update on April 1, and summing up the situation with the line: "Our mistake was not being too bold, but not being bold enough."
RBC left FY2026 estimates unchanged but reduced its volume view for subsequent years. FY2027 unit volumes were lowered by 8% to 3,500 units, while FY2028 volumes were cut by 21% to 3,150 units. Average selling prices were held steady at £590,000 for FY2027 but trimmed by 4% to £575,000 for FY2028.
On profitability, RBC lowered pre-tax profit projections by 14% in FY2027 to £391 million and by 32% in FY2028 to £332 million. Adjusted earnings per share were revised down to 290.2 pence for FY2027 and 248.6 pence for FY2028, compared with prior estimates of 337 pence and 367.8 pence.
Relative to market consensus, RBC's EPS estimates are notably below Visible Alpha consensus figures as of April 1, 2026: its FY2027 EPS sits 16.0% under the consensus of 345.4 pence, while FY2028 stands 31.3% below the consensus of 361.6 pence.
At the then-current share price of 3,104 pence, RBC notes Berkeley trades at roughly 0.8x TNAV across FY2026 through FY2028 and at multiples of adjusted earnings of 9.4x, 10.7x and 12.5x in the respective years.
Cash flow metrics were revised with a constructive medium-term profile: free cash flow per share is forecast to increase from 232.4 pence in FY2026 to 320.9 pence in FY2028, while conversion of FCF to EBITDA is expected to improve from 50% to 93% over the same horizon. Dividend per share forecasts remain unchanged at 90 pence, 100 pence and 120 pence for FY2026 through FY2028.
RBC identified the UK government's first-time buyer stimulus package as the primary risk to its upgraded rating, stating Berkeley would be the housebuilder to gain the least from such measures given the group's target market and average price point. The bank also flagged downside risks that include a UK recession, rising mortgage rates and additional building regulations.
Conversely, RBC listed potential upside triggers that could help the sector and Berkeley's outlook: resolution of the war in Iran, planning reform, falling mortgage rates and cancellation of the 4% corporation tax surcharge applied to UK housebuilders in 2022.
Bottom line: RBC's move to outperform reflects its view that Berkeley's valuation, on a 1x TNAV metric, offers upside despite the broker's material downward revisions to volumes and earnings for FY2027-FY2028. The firm highlights both policy and macroeconomic factors as the main risks and catalysts for the company's medium-term performance.