Market Report: It's payback time for builders, says Dresdner

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The Independent Online

The prevailing turmoil in the credit markets, coupled with mounting fears of a sustained economic slowdown (or, if you're feeling particularly bearish today, coupled with increasing signs of a recession) has cast a dreary shadow over housebuilders.

Save for the occasional rally, when the sector has been buoyed by hopes of a reduction in interest rates, companies like Taylor Wimpey, Persimmon and Barratt Developments have been almost continually depressed. And yesterday, in a scathing, 16-page note, analysts at Dresdner Kleinwort delivered a fresh blow to the sector.

The note, authored by Alastair Stewart and published in advance of next week's results' round, suggests that the updates will "show a marked slowdown in volumes, prices and incentive pressure and a retreat from the land market". In the same, blunt, vein, it adds: "We believe it is payback time for years of speculation and sharp practice, to which most housebuilders are now indirectly exposed. Take advantage of the recent bounce and head for the escape exit."

Investors, shaken and stirred by the travails of the sector, heeded Dresdner's advice. The note inspired a sell-off which, by the end of the day, won Taylor Wimpey the title of the most depressed stock on the FTSE 100, down 7.72 per cent, or 13.9p, to 166.2p. Others to retreat included Persimmon, which lost 34.5p to 705.5p, Bovis, which lost 37p to 556.5p, and Barratt Developments, which lost 17.75p to 393.75p.

Bad broker coverage also hit Wolseley, the construction company, which was downgraded to "under-perform" from "neutral", and had its price target cut to 540p from 610p at Credit Suisse. The bank said that, coupled with recovery, which it believes "is some time away", "Wolseley's stretched financial position will call for cuts to future investments with potential implications for Wolseley's longer-term aspirations". Credit Suisse warned investors that the market "does not appreciate how far recovery may be from now", nor, they think, has it fully priced in the risks in the interim. The note hit the company's share price, which closed down 25p at 653.5p.

Overall, the FTSE 100 slid to 5,893.6, down 73.3 points, or about 1.2 per cent. The UK benchmark was depressed by a disappointing update from Alliance & Leicester, which disclosed a substantial reduction in the company's core operating profit, and worse-than-expected US inflation figures. Taking its cue from the blue-chips, the FTSE 250 index was also down, at 10,124.4, lighter by 84.2 points or close to 1 per cent.

On the FTSE 100, bid speculation surrounded Lonmin, the world's third largest primary platinum producer. The chatter suggested that the Chinese were preparing to bid (or, in another account which was doing the rounds, had made an indicative bid) about £45 per share for the company. The details were scarce – aside from the likely nationality, the suitor remained unnamed – and Lonmin declined to comment on the speculation.

Investor wariness was evident in the company's share price, which gained a slight 1p, or 0.03 per cent, to 3,464p.

Xstrata, the Anglo-Swiss miner which has been at the centre of some persistent consolidation talk, climbed 57p to 3,947p. The company benefited from rumours suggesting that Vale, the Brazilian miner which has been working on a takeover approach since the start of this year, was ready with an enhanced £47-per-share bid. Some more fervent speculators added the suggestion that the two companies had actually reached some agreement on the offer. By the end of the day, without any official confirmation of an agreement, the long-running saga failed to inspire much confidence and Xstrata's shares were up only marginally.

Elsewhere, Alliance & Leicester's update ended the banking sector rally seen on Monday and Tuesday. There was, however, a slight split in the trend – Barclays, which published some well-received results earlier in the week, survived the sell-off and ended the day up 13p at 490p, while those banks which are still due to update the market were depressed. HBOS was down 12.5p to 646.5p, while Lloyds TSB lost 4p to 428p and Royal Bank of Scotland lost 3.5p to 363.25p. Bradford & Bingley was down 1.25p to 181p.

On the FTSE 250, the recent spike in the price of platinum continued to deliver dividends for Aquarius Platinum, which rose by 44p to 838p. After suffering a bit last week, bingo and casino operator Rank Group was also up on the back of resurgent bid speculation. The company's shares closed up 1p at 99p.

On AIM, Shieldtech, the security products and services group, gained 11.36 per cent or 2.5p to 24.5p after announcing that its Aegis Engineering subsidiary had secured a £1.8m contract to supply equipment to a defence client.

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