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On Monday, UBS analyst Marcus Cole upgraded Berkeley Group (OTC:BKGFY) Holdings Plc. (BKG:LN) (OTC:BKGFF) stock from Neutral to Buy, albeit with a reduced price target of GBP49.65, down from GBP53.85. Cole’s assessment reflects a positive outlook despite the share price’s decline over the past year. He notes that the shares have fallen by 14% and currently trade at 1.1 times Price to Tangible Net Asset Value (P/TNAV), which is below the long-term average of 1.5 times.
Cole believes that the current valuation offers a degree of protection in the short term, particularly with Berkeley’s high earnings visibility, as the company has provided a minimum Profit Before Tax (PBT) guidance of £975 million over the fiscal years 2025/26. He suggests that the market has overly discounted the shares, pricing in a scenario where Earnings Before Interest and Taxes (EBIT) would perpetually fall to around £430 million, compared to an estimated £500 million in FY25.
The UBS analyst also addressed the potential of Berkeley’s Build to Rent (BTR) investment portfolio. While acknowledging that there might be moderate value destruction from the BTR investments, Cole is optimistic about its potential to create value. He estimates the BTR portfolio’s Net Present Value (NPV) at 120 pence per share.
Cole’s analysis goes on to argue that the current share price is 15% below what he considers a conservative liquidation value for the company. Looking ahead, he models EBIT remaining at about £500 million for the next four years, with expectations for gradual growth to £600 million over the medium term. This outlook is more favorable than the current market pricing suggests, indicating a belief in the company’s resilience and growth potential.
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