Market Report: Housebuilders have more room to grow

Pile into property was the call from City scribblers today. But not bricks and mortar. HSBC's analysts think the market is underestimating shares in the builders of houses. This may come as surprising to some – the UK housebuilder sector has already risen by an average of 24 per cent so far this year, outperforming the mid-cap index by 13 per cent. But HSBC's property team think the "Government's 'game-changing' housing market stimulus" announced at last month's Budget means the housebuilders are set to grow even further.

They now rate seven of the eight housebuilders overweight with only Berkeley Group downgraded to neutral. They think that for every one percentage point of house price inflation, housebuilders' pre-tax profits could add 6-13 per cent.

Their argument goes like this: housing supply is tight, mortgage volumes will rise, and the Government's "Help to Buy" scheme will only make things better.

Of all the stocks, they think Barratt is "most heavily geared to a recovery", and investors bought into their story. The shares added 13.4p to 280.4p and HSBC gave them a price target of 355p.

The FTSE 100 continued the week's advance, helped by higher-than-expected Chinese import numbers. China's surprise trade deficit for March means there is stronger demand for raw materials, so miners were in favour on the benchmark index, which added 74.16 points to 6,387.37.

Vedanta built up a 63p gain to 1,179p after a strong production update.

Diageo rose 22p to 1,987.5p, helped by Nomura, which ranked the Guinness and Smirnoff-vodka owner an attractive buy after recent profit-taking. But analysts also warned that the spirits group's attempt to take to a majority stake in India's United Spirits could fail as shareholders turn up their noses at the UK group's 1,440 rupees (1,724p) a share bid to buy 26 per cent of the company on the open market. Some also questioned whether it can still secure the other 27 per cent stake from United Spirit's Vijay Mallya given the Indian tycoon's troubles with his loss-making Kingfisher Airlines.

Last week's fears of a bird flu pandemic have eased, and airline and travel stocks recovered. EasyJet soared 68p to 1,090p to the highest spot on the top flight index and British Airways' owner IAG climbed 13.7p to 250.9p.

Back on the mid-tier index, AZ Electronics, the maker of chemicals used in smartphone screens, issued a profit warning on Tuesday, but the shares rose 33.6p to 273.6p after UBS analysts raised it to buy from neutral but cut their price target to 340p. Eight directors bought shares in the company following the dip in the price. A total of 170,557 shares for a total cost of £451,000 were bought by directors including the chief executive, Geoff Wild, and John Whybrow, the chairman.

Another director deal came in the shape of Centamin Egypt's chief executive and chairman, Josef El-Raghy, who bought 500,000 shares following shining production results at the gold miner the day before. The shares glistened up 0.37p to 47.33p.

The small cap gold miner Petropavlovsk, previously named after its co-founder and chairman, Peter Hambro, issued an update on his share sale. It edged down 0.3p to 208.4p. Mr Hambro confirmed the reduction of his stake from 4.62 per cent to 3.43 per cent. The reduction came as a result of a derivative deal – a shares loan – with JP Morgan. It was entered into in January 2011 with 2 million-odd shares valued at £10.68 each. JP Morgan received the shares, now worth less than £5m.

There was some good news for investors who follow Nat Rothschild. After a catalogue of problems at the coal-miner Bumi, shares in his Genel Energy spurted up more than 6 per cent on news of its oil find in Kurdistan. Genel, run by the former BP boss Tony Hayward, is the largest producer in the oil-rich Kurdish region of Iraq, although it has been in dispute with the Iraqi government over exporting oil from the semi-autonomous region. These problems were put to one side when Genel announced a "significant" oil find at the first of five wells in the Chia Surkh region. The shares gushed up 51p to 850p, the highest in five months for the small-cap explorer. However, the price of the company, created in 2011 via a reversal of Turkey's Genel into a cash shell put together by Mr Rothschild, is below its 2011 float price of 1,000p.

Aim-listed Immunodiagnostic Systems Holdings is "the most interesting recovery story in our coverage", Investec analysts said after its trading update, and the shares were 31p better off at 321p.

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