Afternoon:
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Wednesday, 30 July - 4pm update
Goldman Sachs and Cazenove are the latest top City brokers to suggest the recent rally in shares of cash-strapped housebuilders may have been a false dawn. The sector has rallied 30% since the start of the month, albeit from a low point that tends to flatter.
Goldman says it now sees the potential for further share-price falls on the basis of fundamental valuation, and describes the UK housebuilding sector as the least defensive in terms of profits. The US broker still views the sector as a one-way street.
Rival Cazenove reckons this month's rally may have at least deterred the bears from continuing to short the sector. It says the trading update had been “awful”, but not as awful as earlier feared. The writedowns on the landbanks have not been as large as expected. But that do es not mean the corner has been turned. The builders themselves have been cutting and passing dividends, laying off jobs and have not been buying their own shares.
Goldman already has Bovis Homes, down 6p at 339¾p, and Berkeley, 31½p lower at 725p, on its influential conviction sell list. Its 2009 profit estimate for Bovis is 85% below consensus while Berkeley is seen as plain expensive in relation to profits on a historical basis. Those also on the sell list include Bellway, 29p cheaper at 486½p, Persimmon, 9½p off at 302p, and Redrow, up 4¾p at 128¾p.
Redrow has collapsed from 548½p this year, bringing a headache for biggest shareholder Toscafund Asset Management, run by Martin “Rottweiler” Hughes. Toscafund holds 43 million shares, or 27% of the company, and is now believed to be sitting on a sizeable paper loss. The slump in the housing market has also taken a heavy toll of the builders. Many need to find fresh funds after seeing the value of their land banks shrink considerably.
A convincing performance on Wall Street overnight, which saw the Dow get back the previous day's losses and more, gave the London market its lead. Although share prices managed to trade below their best levels, the FTSE 100 index was still able to post a rise of 59.3 at 5378.5.
Lloyds TSB fell 20p to 301p, having made bigger than expected writedowns due to the banking crisis which left first half profits 70% down.
Tomorrow it is the turn of HBOS, 7p lower at 265¾p. Once again profits are expected to have collapsed, which will do little for the share price, or the smattering of private investors who chose to take up the group's £4 billion rights issue at 275p.
Sentiment was underpinned by results from life assurer Aviva, 33¼p better at 500p, and car insurer Admiral, up 55½p at 880½p. The miners also made headway, encouraged by impressive first-half numbers from Xstrata, up 91p at 3526p, and Kazakhmys, 26p higher at 1402p. Xstrata said it had enjoyed record output for the first six months of the year in ferrochrome, platinum, semi-soft and coking coal and refined nickel.
Panmure Gordon confesses it has no confidence in its own forecasts for Pendragon, down 0.5p at 8.85p, ahead of interims next month. Difficult market conditions will prevent the Stratstone and Evans Halshaw motor distributor from executing any kind of market-recovery strategy. So it has slashed its target from 21p to 10p and tells clients to avoid the shares for now.
British Airways put on a further 12p at 260½p in response to its proposed merger with Iberia. Dealers say the bears are attempting to cover their short positions.
UBS has downgraded Dimension Data Holdings, down 1½p at 48¾p, from buy to neutral, claiming US giant Cisco may drive sector sentiment lower when it announces results next week. It expects Cisco's fourth quarter to be in line with market forecasts but notes there is an increased likelihood of the company lowering its first-quarter guidance.
