Market Report: Fundraising concerns weigh on Barratt

Barratt Developments was in focus last night after a leading broker weighed in, anticipating further land writedowns, which in turn may necessitate a capital raising.

Bank of America-Merrill Lynch said the incoming finance chief David Thomas is likely to undertake another assessment of the group's landbank carrying values towards the calendar year-end, which in turn is likely to precipitate a "further 'hit' to stated NAV [net asset values]".

"Although the risk of further extensive land provisions has eased in the second quarter, the fact that Barratt has been so far 'behind the curve' recognising lower land values suggests that it is the most vulnerable to a further meaningful writedown," Merrill said, adding that such a move is likely to "compel a second round of talks" between the group and its lenders, and also "some form of capital raising" to strengthen the balance sheet.

As a result of Merrill's assessment and weakness in the wider sector, at the close Barratt was a penny weaker at 163p, while Persimmon eased to 401p, down 4p, Redrow was 4.5p behind at 187p and Bellway lost 3.5p to 649p.

Overall, the FTSE 100 held on to earlier gains, closing broadly unchanged at 4361.84, up 15.38 points. The FTSE 250 was also broadly flat, easing slightly to 7,554.11, down 18.22 points. Sentiment among traders remained strong following some positive economic news from China, and forecast-beating results from JP Morgan Chase, the American banking group that posted a 36 per cent jump in second-quarter profits.

Parts of the mining sector were weaker than they have been in recent sessions, thanks to a bout of profit taking both in equities and on the commodities exchanges following news that the Chinese economy had grown at a faster than expected pace in the second quarter.

The trend undermined the Eurasian Natural Resources Corporation, which retreated to 720.5p, down just over 3 per cent or 23.5p, and Anglo American, which was 2.3 per cent or 41p behind at 1,759p. Others in the sector, including BHP Billiton, flat at 1,435.5p, and Antofagasta, up 1.5p at 649p, managed to stay afloat, but failed to make much headway.

Further afield, SABMiller advanced to 1,314p, up 1.8 per cent or 23p, after Exane BNP Paribas weighed in, moving the stock to "neutral" from "underperform", with a revised 1,350p target price, compared to 900p previously. Citing strengthening profits in Latin America, currency benefits and falling raw material costs, the broker also raised its earnings per share forecasts for the group.

Insurance issues were mixed, with Friends Provident rising by 2 per cent or 1.4p to 72p as traders awaited Resolution's next move, but Legal & General declining to 56p, down 2.3 per cent or 1.33p. ING, which maintains a "sell" stance on L&G, expressed caution ahead of the group's results, which are due early next month. For sector peer Aviva, which is also due to update the market in early August and is rated "buy" at ING, the broker said it had changed its dividend forecast "from a maintained 2009 payout to a cut to 25p", compared with 33p in 2008.

At the interim stage, ING expects Aviva, which was down 1.2 per cent or 3.75p at 318p, to cut the payout from 13.09p to 8.75p. "We think this could signal a revival in the stock which has performed poorly in recent months," the broker said.

On the second tier, the rumour mill rolled on around Wellstream, the oil services group that gained 4.8 per cent or 22.7p to 496.75p amid talk that it may be in the sights of a larger peer, who may be willing to offer a large premium to the current share price.

Elsewhere, the oil explorer and producer Heritage Oil, which last month announced plans to merge with Turkey's Genel Energy, fell back, easing to 490.75p, down 1.7 per cent or 8.25p, as speculators moved to bank profits from recent gains. Earlier this week, the oil major Royal Dutch Shell, up 0.9 per cent or 14p at 1523p, was rumoured to be eyeing Heritage, with some in the market quoting a potential offer price of as much as 700p per share.

But Pali International, which weighed in on the chatter, played down the probability of an offer, saying that while the potential for an approach could not be ruled out, in its view there was only a 10 per cent to 15 per cent chance of a counter-bid. "We believe that the sale of Heritage's assets in Uganda to a large oil player (like Shell) could be a more likely scenario," the broker said, adding that it would be surprised if such an asset sale takes place before the completion of Heritage's merger with Genel.

Among smaller companies, Regal Petroleum closed at 62.25p, down 0.25p, despite Merrill reiterating its "buy" stance on the stock, saying that the recent pullback in the share price provided an attractive opportunity to wade in. "Regal's recent underperformance against [European oil explorers & producers] opens a particularly attractive opportunity for investors ahead of potentially transformational MEX 106 and SV 58 well results," the broker said, sticking to its 130p target price for the stock.