Britain’s housing shares cratered in the immediate aftermath of Britain voting to leave the European Union but, according to research firm Jefferies, this has led to an absolute bargain for stock investors right now.

Anthony Codling and Sam Cullen at Jefferies point out that while housebuilder Bovis Homes is trading over 30% lower since Britain’s Brexit vote on June 23, buying stock in the group at the moment is “akin to buying £5 notes for £4.”

In fact, it says that even if the housing market slows, then Bovis is one of the better housing stocks to weather the storm and shares will not fall as greatly as others (emphasis ours):

“In our view, buying shares in Bovis is akin to buying £5 notes for £4, the shares are trading below book value, implying a market cap per plot of £38,000 against a balance sheet value of £49,000 per plot and this before we account for the implied gross profit of £63,000 per plot. If the UK housing market slows significantly other shares in the sector have further to fall than Bovis and if concerns turn out to be overdone, Bovis has the biggest rerating ahead.”

On June 23, over 51.9% of the country voted to leave the EU, sending housing and banking stocks plunging. Investors fled due to the UK’s new political volatility and uncertainty over how the exit will impact the real economy as well as foreign investment.

Housing stocks were hit the worst and have yet to recover. Take a look at Bovis Homes:

Prior to that, housing stocks had been doing great because Britain has a massive market imbalance — too little supply versus too large demand. This means housebuilders will be in demand for a long time as they need to keep building new homes to sate that demand. In turn, this pushes up prices and therefore profits for the companies.

Bovis told investors in a trading statement that for the first six months of this year, average sales price on legal completions increased by 15% to £255,000 ($330,845) and it has invested heaps in buying new plots of land.

However, after the referendum, it is unclear how it will affect the group, says Bovis:

We have traded in line with our expectations for the first six months of the year. At this time it is too early to assess the impact of the EU referendum on the UK housing market. We have demonstrated good discipline in carefully managing investment and driving growth in revenue and profit. This discipline will be maintained into the second half year as we target the delivery of sustainable build and sales rates from our sites.

Bovis stock is trading around 627.00p, but Jefferies thinks it could hit as high as 1,120.00p. Here’s why (emphasis ours):

“We appreciate that the future remains uncertain, but such moves are certainly preparing for a rather bleak future, and there seems to us to have been a blanket and rather indiscriminatory de-rating. Bovis trades at a 27% discount to CY2017E (estimated contract year) net book value. It is, therefore, cheaper to buy the shares of the company than the land it owns on its balance sheet.

“Overall the sector trades at 1.0x CY2017E net book value. The average plot cost in the landbank is £49,200 and the market capitalisation of the group per plot is £38,000, implying significant value embedded and this is before we take into account the average gross profit per plot in the landbank as at 31 December 2015 was £63,000. In our view, the market is making some heroic downside assumptions before we have even seen the first post-Brexit datapoint.”

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