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On Thursday, Deutsche Bank (ETR:DBKGn) adjusted its price target for Berkeley Group (OTC:BKGFY) Holdings Plc (BKG:LN) (OTC: BKGFF), a leading UK property developer, reducing it from GBP56.00 to GBP46.00. Despite the reduction in target price, the firm maintained its Buy rating on the company’s stock.
The adjustment follows an analysis by Deutsche Bank, which suggests that Berkeley Group has the capacity to return approximately 150% of its current market capitalization over the next decade, amounting to around £5.3 billion. This projection does not rely on a market recovery or necessitate a compromise on the company’s earnings potential.
The bank’s analysts believe that the majority of these returns will likely be achieved through share buybacks, unless there is a significant increase in Berkeley Group’s valuation. They anticipate that these buybacks could lead to a compounding effect on earnings per share (EPS), net tangible assets (NTA), and the share price. Under the scenario outlined by Deutsche Bank, Berkeley Group’s share price has the potential to increase by 3.3 times. Even after applying a 10% discount rate, this would result in a net present value of approximately 4600p per share, which is around 30% higher than the current share price.
In their commentary, Deutsche Bank highlighted the attractiveness of Berkeley Group’s valuation, which is currently trading at 1x price/net tangible assets (P/NTA), a ratio that aligns with its lows during the Global Financial Crisis (GFC). The bank’s analysts underscored the opportunity this presents to investors, given the company’s established track record of performance.
The maintained Buy rating reflects Deutsche Bank’s positive outlook on Berkeley Group’s shares, suggesting confidence in the company’s ability to generate substantial shareholder value in the long term.
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