Taylor Wimpey among six construction sector top picks
There’s been a mixed performance from this bunch of stocks, among them some high-flyers alongside potential recovery plays. Graeme Evans explores this analyst’s biannual review of the sector.
9th September 2025 15:46
by Graeme Evans from interactive investor
Under-pressure Taylor Wimpey (LSE:TW.) shares have been backed for recovery after a City firm’s biannual review of the construction sector highlighted an improving outlook.
Berenberg named the housebuilder among its six UK construction-related top picks, alongside Galliford Try Holdings (LSE:GFRD), Hill & Smith (LSE:HILS), Howden Joinery Group (LSE:HWDN), Mortgage Advice Bureau (Holdings) (LSE:MAB1) and Volution Group (LSE:FAN).
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The bank also upgraded its price targets on Buy-rated Balfour Beatty (LSE:BBY) by 50p to 710p and Kier Group (LSE:KIE) from 210p to 225p.
While the sector has been hit by weak investor sentiment and an underwhelming tone to company reporting, Berenberg still expects modest volume growth of 1% in 2025.
A combination of easing financing costs, economic growth and pent-up demand means it sees a return to more normalised growth of 3% in 2026 and 2027.
In the housebuilding sector, the report said that volume growth for the first time since 2021 boosted confidence that a cyclical recovery is under way.
In addition to its prevailing view of a slow and steady recovery in UK housing starts in the next few years, Berenberg picks out Taylor Wimpey for special attention.
Reasons for this include its strong balance sheet, which the bank would expect to remain in a net cash position over its forecast period.
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It adds that a lengthy landbank includes 65,000 plots that are owned with planning consent, which is equal to about five years’ worth of supply.
On valuation terms, the company trades on 0.9 times tangible net asset value compared to the last 10-year average of 1.5 times and 20-year average of 1.2 times.
A poor reaction to half-year results means the shares have fallen to today’s 98.5p, which compares with 122p at the start of the year and Berenberg’s price target of 135p.
They trade with a projected dividend yield of 9%, reflecting an ongoing policy to distribute 7.5% of net assets or at least £250 million annually.
Among Berenberg’s other UK construction top picks, the bank believes that kitchens supplier Howden Joinery is well positioned for a cyclical recovery in volumes.
It points out that the group has maintained gross margins in the 60-62% range for a long period, demonstrating its strong market position and the tight control it maintains on pricing.
The bank, which has a price target of 975p, added: “The balance sheet is strong and has been in a net cash position for at least the last 15 years, which places the group in a strong position to weather the ongoing torpor in the UK RMI (repair, maintenance, improvement) market.”
Hill & Smith offers a portfolio of niche engineering businesses exposed to the UK and US infrastructure end-markets. As the company has scaled, Berenberg said the weighting towards higher-margin and better-growth areas has increased, particularly in the US.
The bank has a price target of 2,650p, which compared with 2,130p earlier today.
On Mortgage Advice Bureau, the Buy case and big upside in price target to 1,150p is supported by a recovery in UK mortgage market volumes, more advisers earning more revenue and the strength of the group’s balance sheet which should support selective M&A.
In February, the FTSE 250-listed business set out its intention to double its market share, double revenue and increase its adjusted profit margins to about 15%. Berenberg said this would imply medium-term adjusted profit being 2.5 times higher than in 2024.
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In support of Volution, the bank said the ventilation business has proven its ability to build and diversify its product base, expand geographically with selective and value-accretive acquisitions and sustainably grow its margin profile.
It added: “In the coming years, we expect the business to provide exposure to a recovery in both new-build and residential RMI across its markets, and to continue to look for acquisitions that can further scale the offering.” The price target is 720p.
Galliford Try is the preferred pick among the construction contractors, having delivered consistent earnings growth since the sale of its housebuilding business in 2020.
Underlying earnings are set to more than double if the group can achieve its target of more than £2.2 billion in revenue and a 4% divisional adjusted operating margin by 2030 – up from £1.8 billion and 2.5% respectively in 2024.
Berenberg said: “Given the strong – and growing – forward work position and the supportive margin environment, these targets look achievable.”
The bank, which has a price target of 510p, said the shares continued to look cheap despite a 40% rise to 417p over the past year.
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