Shares in Barratt Redrow declined by more than 2% on Monday following a fresh set of analyst revisions from Deutsche Bank. The brokerage reduced its target price by 15% to 454p from 536p while keeping a "buy" rating on the stock after adjusting its profit outlook downward and flagging the financial impact of fire-safety remediation work.
The analyst responsible for the update, Chris Millington, lowered the target price to 454p from 536p but did not change the recommendation. The stock closed at 388.90p on the day of the announcement.
Deutsche Bank trimmed its underlying pre-tax profit estimates for Barratt by 9% for fiscal year 2026, by 6% for FY27 and by 7% for FY28. These revisions follow the company’s first-half results, which the bank described as broadly in line with expectations but which also exposed the consequences of challenging trading conditions during the period.
The brokerage noted that tough market dynamics through the first half had put pressure on both margins and the company’s order book. A key factor weighing on Barratt’s near-term valuation is a £1.3bn provision balance related to fire-safety remediation, which Deutsche Bank said will depress cash generation even as management pursues outlet growth and margin improvement initiatives.
Reflecting the cash impact of remediation work, the bank raised its discount rate assumption from 8% to 10%, aligning the rate with historical averages. That change contributed to the lower price target and altered the firm’s valuation approach.
Despite these headwinds, Deutsche Bank’s outlook is not uniformly negative. The brokerage projects Barratt should still deliver above-average profit growth over the next few years, premised on management targets for expanding outlets and lifting margins. For FY28, the bank’s return on tangible equity forecast stands at 8.5%.
Deutsche Bank also judged that the company’s existing valuation metrics do not appear precipitously stretched. The analyst noted that Barratt’s current 0.79x price-to-net tangible assets ratio is broadly appropriate in light of the forecast returns. At the same time, the bank suggested the stock may warrant a higher rating should market conditions improve, and it pointed to the potential support from a government demand-side initiative as a factor that could bolster the housing market.
The revised target of 454p is consistent with Deutsche Bank’s calendar year 2026 net tangible assets valuation and reflects the combined effect of lower profit expectations, the remediation provision, and the higher discount rate.
Context and implications
The broker’s adjustments underscore the interplay between near-term cash pressures stemming from remediation obligations and the company’s medium-term growth targets. While the downgrade reduces the near-term upside implied by the previous target, Deutsche Bank retained a constructive medium-term view based on operational initiatives to expand outlets and improve margins.