Market Report: Taylor Wimpey knocked by bearish Goldman

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The Independent Online

House builders, invariably depressed by mounting talk of a slowdown in the UK economy, were hit by a bearish note from Goldman Sachs yesterday.

Noting that "recent trading updates from UK house builders (Persimmon, Taylor Wimpey and Barratt) show forward order books down by more than 10 per cent, with the key spring selling season still to come," the bank reduced its assumptions for the domestic market. Goldman Sachs now expects UK house prices to fall by 5 per cent in 2008 (against a previous forecast of 3 per cent), and by 2 per cent in 2009 (against a previous forecast of flat growth). The bank is also bearish on volumes, predicting a slump of 16 per cent in 2008.

The note damped sentiment towards the sector. Of the leading names in the business, Taylor Wimpey was the biggest casualty, losing 1.66 per cent to 172p.

The remainder of the sector fared better and managed to mount a recovery by the close. Persimmon, which slumped to 679p at one point, crawled back into the black, up 0.92 per cent to 714.5p. Bellway, which dropped to a low of 692p, although still in the red, recovered to 718.5p, down 0.14 per cent. And Barratt Developments, which dropped to 359.75p at one point, was also better off, up 0.2 per cent at 378.75p at the close.

In the mining sector, Chinese whispers failed to lift Rio Tinto. An early morning rumour suggested that China's Chinalco, which picked up a 12 per cent stake in the London-listed entity earlier in the month, was mulling the acquisition of another 8 per cent of the company. The speculation failed to excite investors and the company's shares closed down 1.73 per cent or 92p at 5,240p.

The FTSE 100 closed down 76.3 points, or 1.32 per cent, at 5,707.70. After being constrained by the housing sector all morning, the benchmark index was kept in the red by late news of credit default woes at the US insurance company AIG, which depressed UK banking and financial stocks.

Predictably, insurers were hit the worst – by the close, Old Mutual, had lost 5.59 per cent to 116.6p, while Resolution lost 6.15 per cent to 672p. Aviva slumped 4.92 per cent to 551p, Royal & Sun Alliance lost 4.45 per cent to 124.6p, and Prudential lost 3.8 per cent to 583p.

On the FTSE 250, which lost 0.74 per cent to 9,735.4, continuing bid speculation took the engineering group FKI to the top of the day's best-performing stocks. The company, which received an indicative 70p- per-share offer from Melrose just over a week ago, is believed to be in talks with the private equity group Blackstone, which may mount its own bid for FKI. News of Blackstone's interest surfaced late in the day on Friday, and, yesterday, the speculation boosted FKI's share price to 70.5p, up 5.75p or 8.88 per cent.

Just behind FKI, seventh in the table of the FTSE 250's highest risers, its sector counterpart IMI also gained from bullish investor sentiment. Along with FKI, IMI is often touted as a likely takeover target. The company has a diverse business – covering everything from valves for nuclear power plants to beer-dispensing equipment for restaurants, bars and football stadiums – and is considered an attractive target for private equity investors. IMI's shares rose to 380.75p, up 13.75p or 3.75 per cent.

The energy efficiency specialist Eaga was also a winner yesterday. The company's shares gained 11.25p or 6.76 per cent to 177.75p after it said that the BBC had given it preferred bidder status for a digital switchover contract. The news prompted an upgrade by KBC Peel Hunt, which raised its target price for the stock to 180p from 172p.

On the FTSE Smallcap index, Oxford Biomedica saw its share price climb to 23.75p, gaining a spectacular 26.67 per cent or 5p. The surge was born of rumours suggesting that Sanofi-Aventis, Oxford Biomedica's partner in the development and commercialisation of TroVax, its cancer treatment drug, may soon mount a bid for the company.

A takeover has been mooted before and, yesterday, despite some reports dismissing the speculation, renewed chatter suggested that a formal offer was imminent.

Also on the Smallcap index, Fidessa Group got a boost after posting positive results. In response, Panmure Gordon raised its target price to 983p from 973p, helping the company's shares climb by 12.6 per cent or 94.5p to 844.5p.

And finally, on Aim, Sigma Capital was one of the best stocks of the day after selling Trisent Communications and Pentland Systems. By the close, the company's shares had climbed 2.5p or 7.69 per cent to 35p.

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