Goldman gives a green light to buy the builders

Good news at long last for battered housebuilders. Well, sort of. Goldman Sachs has been telling clients today that many of them are starting to look oversold and that the risk-reward ratio for investors wanting to test the water is looking more favourable.

That was the signal to start squeezing the bears again and shares of the leading builders were marked sharply higher. Barratt Developments led with a rise of 28p to 156p, also fuelled by the news that Polaris Capital Management had bought an extra 1.5 million shares, raising its holding to 21.4 million shares, or 6.18% of the company. Others going better included Taylor Wimpey, up 8¼p at 59½p, Persimmon, 44p to 413¾p, Bovis Homes, 37½p to 475½p, and Bellway, 40p to 643½p.

The American broking house says the current sub-sector share prices are discounting average total writedowns of 46% of 2007 book value by the end of next year to reflect the shrinking value of their land banks. Housebuilders in the US have made writedowns since the start of the current downturn in 2006 averaging 60% of total book value. The worst of the writedowns are seen in Redrow, Taylor Wimpey and Barratt.

Goldman says the improved risk-reward ratio also takes into account the possibility of companies turning to shareholders for extra funds in the shape of rights issues. Berkeley remains on its Conviction Sell list and along with Persimmon and Bovis provide the biggest risk to the broker's new target prices. But it has removed Bovis from the list and upgraded Bellway from sell to neutral.

Another builder, Crest Nicholson, is reckoned to have obtained £100 million of emergency funding from HBOS, which last month tapped the market for £4 billion of extra cash.

As prices were marked higher, the FTSE 100 index rose 34.4 to 5523.6. In New York this afternoon, shares gave back some of Friday's gains. The Dow fell 15.6 to 11,718.8.

Goldman Sachs has downgraded the UK's biggest credit rating agency, Experian, 5½p cheaper at 408¾p, from neutral to sell and slashed its price from 421p to 375p. Goldman expects Experian's credit-related operations to remain under pressure and that this will spread further across the business as clients become increasingly cautious and price-sensitive. The broker has reduced its 2009 earnings a share forecast by 7% and that for 2010 by 10%.

Goldman said unless Experian demonstrated it could sustain growth against a much changed credit environment, it would not return to its post-demerger rating.

BG Group rose 2p to 1092p on the back of an oil discovery in the North Sea off Norway. On Friday, BG announced it had made a material discovery in Brazil's oil-rich Santos basin. Meanwhile, it is pressing ahead with its aggressive bid for Australia's Origin Energy.

Aquarius Platinum, up 2p at 42p, has been raised from neutral to overweight by HSBC and from neutral to buy by rival UBS following last week's results from the platinum miner. HSBC has also increased its target from 630p to 700p, but UBS has lowered its target from 865p to 650p.

The broker said its new price target is based on a 15% discount to the implied multiple that Xstrata, down 35p at 2955p, appears to be paying for Lonmin, 13p lower at 3409p. Weekend reports claimed Xstrata had put together a £5 billion overdraft to help finance the acquisition of Lonmin.

Copper miner Kazakhmys spent a further £402 million topping up its holding in Eurasian Natural Resources, down 75p at 1049p, but denies it plans to bid. Kazakhmys has bought a further 35.7 million ENRC shares, taking its holding to 322 million shares, or 25% of the company. In March, Kazakhmys, 16p off at 1232p, rejected an offer from ENRC, the world's biggest producer of ferrochrome and an exporter of iron ore, worth 1550p a share.