Market Report: Help to Buy U-turn hits the builders

 

Fears of a property bubble have finally reached the City. The prospect of less stimulus from the Bank of England and steps by the Government to monitor its Help to Buy scheme hit housebuilders hard yesterday.

Home prices have been rocketing, mortgages have become a bit easier to get and Help to Buy has been getting more people on the ladder. In turn, housebuilding stocks have been flying.

But news yesterday that Chancellor George Osborne has asked the Bank of England to monitor the Help to Buy programme and comments from  Bank Governor Mark Carney on easing bond-buying combined to send the builders south.

Persimmon was the worst faller,  down 48p to 1,061p – bottom of the benchmark index.

On the mid-tier table, estate agencies group Countrywide tumbled 26.5p to 518p. It was hit after two of its investors sold a £94m stake. Private equity group Alchemy Partners offloaded a 5.9 per cent stake and an institutional investor ditched 5m shares. It follows Oaktree Capital and Apollo Global selling a total of £200m last month. Other housebuilders were also suffering yesterday. Taylor Wimpey was 3.9p weaker at 97p, Bellway lost 40p to 1,262p and Bovis Homes decreased 20p to 712p.

The housing stocks joined a wider market that was weaker after Mr Carney’s comments on bond buying gave rise to traders worrying that next would be stimulus reduction.

The FTSE 100 index shrank by 52.93 points to 6,512.66p.

But there was one City analyst still talking up housebuilding-related stocks. Goldman Sachs said investors can buy Travis Perkins to get a piece of the current housing boom. The builders’ merchant, which also owns retailer Wickes, is attractive because “UK housing data and Travis Perkins organic revenue growth” have had a “historically strong correlation”. The analysts think the “high operational gearing” of the company will mean good top-line growth and a “faster pick-up in earnings growth”.

The shares were ahead during the morning session but closed down 2p at 1,648p.

Goldman’s experts declared that investors looking for clever buys should ignore “high structural growth” stocks and look at those that are “cyclically exposed” such as Travis Perkins. Other stocks it was keen on included office space provider Regus, up 1p to 182p, and distributor of electronic components Premier Farnell, which produced a 5.8p rise to 216.7p and was top of the mid-cap index after the tip.

Miners were weak yesterday and Chilean-based copper Antofagasta was the worst hit – down 23.5p to 830p. Analysts at Bank of America Merrill Lynch decided to downgrade their gold price forecast and said the only yellow metal miners still worth investing in are Randgold Resources, down 34p to 4,511p, and African Barrick Gold, up 1.4p to 165.1p.

Russian gold miner Petropav-lovsk has recently edged higher on rumours of bargain-hunting and possible interest from chairman Peter Hambro to take it private. But Bank of America reduced it to neutral because of “significant earnings downgrades” and the risk it could breach covenants next year. Petropavlovsk fell 1.75p to 77p.

Following weak half-year results last week, analysts at Cantor Fitzgerald rated retailer French Connection a hold yesterday, and said that although it has made good progress they don’t expect it to break even until 2015 at the earliest. They added that the share price was underpinned by its £25m cash balance and they gave it a 32p price target for shares that stumbled 1.25p to 31.5p.

AIM-listed Interior Services Group (ISG) announced that it has sealed a £32m deal to fit out the new Oxford Street headquarters of Arcadia, owned by Sir Philip Green. Arcadia is the parent company of retailers such as Topshop, Burton and Bhs. ISG built up a 2.5p rise to 241p.

PT Rajawali Corp, the majority shareholder of Archipelago Resources, has made an offer for the rest of the group and plans to relist it in Indonesia and it advanced 8.75p to 5775p.

Berkeley Minerals Resources jumped 0.1p to 2.37p after news that the Kabwe copper-tailings processing plant will start operating in the fourth quarter of this year. Surveillance technology systems specialist Synectics travelled up 12.5p to 502.5p when it announced a new contract with bus group Go-Ahead.

Buy

Babcock International

Snap up shares in Babcock, Cantor Fitzgerald recommends. The broker bases its enthusiasm on the fact that the engineering group’s “key markets remain resilient” and it is confident that “there are significant growth opportunities from further outsourcing in both the UK and overseas. Shares at present are 1,201p with a 1,300p target.

Sell

Electrocomponents

Dump shares in Electrocomponents, Peel Hunt advises. It says it sees the electronics firm “as primarily an income stock for the time being, albeit with no prospect of a dividend increase in the near future”. It gives a target for shares, presently 276.3p, of 220p.

Hold

Carillion

Hang onto Carillion, Investec urges. Shares in the construction services business have recovered strongly in the past three months and the broker says the valuation looks “about right”. It adds that it is struggling “to see much near-term upside”, and that “there is still much to do”. Shares closed at 314.1p with a 305p price target.

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