Housebuilders' shares went into freefall for the second day running yesterday with two of its biggest players – Barratt and Redrow – both plunging by more than 40 per cent in the afternoon, before rallying to close down 21 per cent and 19 per cent respectively.
Taylor Wimpey was also hit hard, closing down 19 per cent after losing as much as 35 per cent during the day. The bloodbath came on top of severe losses the day before, when Barratt closed down 25 per cent and Taylor Wimpey down 16 per cent, as gloomy house price predictions threatened the value of the builders' land banks.
With stocks spiralling and the market awash with rumours of potential writedowns and or rights issues, Barratt finally bowed to the pressure and made a statement confirming the guidance given in an interim management statement a month ago.
Mark Clare, the chief executive of Barratt, said: "We are comfortable with our consensus forecast on volume and profit. Things are just the same as they were three weeks ago; we are still focusing on delivering as we expected to then and we have not seen the complete collapse in the market which is being inferred."
The market is difficult and orders are running at around 50 per cent of what they were, Mr Clare added, but he said the company would remain within its banking covenants when it reports its numbers on 10 July.
However, investors are not so sure, and although all the big housebuilders' stocks rose from the afternoon's collapse following Barratt's statement, by the time the market closed they were all on the slide once again.
"The statement didn't really change anything because it just said what we have been told before," Chris Millington, an analyst at Numis, said. "The market is speculating that Barratt is going to break its banking covenants, that it is likely to have writedowns and could go bust. There are no long buys from pension funds and institutions, just a lot of sellers from hedge funds, and the price is suffering as a result."
The whole sector is struggling but Barratt is particularly vulnerable because it is so highly geared following the £2.2bn takeover of Wilson Bowden last February. With £1.7bn in debt, and a market capitalisation down to £250m, the company's options are running out. "The hedge funds have sold down the stock to such a level that, even if there were a rights issue, there is not enough equity left on the table," Mr Millington said.
Barratt said it expected land writedowns to be limited, but the market, which has stopped conforming to the usual analytical metrics, will remain in turmoil until the trading update next month.
Mark Hughes, an analyst at Panmure Gordon, said: "Everybody is out there in the dark and proper share price valuations don't work. But because Taylor Wimpey is falling so sharply as well, it shows that the issue is the sentiment that all the companies that are highly geared will run into trouble."Reuse content