Irish Home Price Drop of Up to 20% Priced Into Stocks, Davy Says

(Bloomberg) --

Equity valuations suggest Irish home prices may fall by a fifth, as the nation grapples with the coronavirus crisis, yet the sector’s large order books and strong balance sheets may provide resilience, according to Davy.

A drop in the shares of homebuilders Cairn Homes Plc. and Glenveagh Properties Plc. imply the market has priced in “declines in house prices of maybe 15-20%,” Colin Sheridan, an analyst at Dublin-based securities firm Davy, said in a research note Tuesday. The slump also implies land values could fall 50%, he said.

Forward orders would cover as much as 50% of Glenveagh and Cairn’s 2020 targets if they recorded no more sales this year, according to Sheridan. Instead, the “most immediate risk” would be a lockdown hitting construction activity.

Furthermore, both firms’ balance sheets are “in good health,” with headroom relative to funding facilities and low fixed costs. “We believe that both Glenveagh and Cairn have the ability to withstand a protracted period of downtime if that situation unfolds,” Sheridan, who rates the stocks outperform, said.

Cairn has fallen 45% in the past month and Glenveagh has dipped 41%, while the ISEQ All Share Index has slumped 33%. Ireland has effectively banned mass gatherings and numerous businesses have closed in an effort to slow the coronavirus impact on the country. Still, the number of cases there passed 1,000 on Monday and the government will consider more restrictions on people’s movements on Tuesday.

House values in Ireland have recovered sharply since 2013, amid a housing shortage, after the country suffered one of the worst property crashes in Western Europe barely a decade ago, when prices fell by half. The crash drove the nation’s banks to the brink of collapse and helped force the country to seek an international bailout in 2010.

Glenveagh shares were up 0.8% to 47 cents at 11:14 a.m. in Dublin, while Cairn rose 3.8% to 69 cents.

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