Market Report: Housing market hopes drive Bovis higher

Bovis Homes bucked a weak market trend yesterday, after Royal Bank of Scotland analysts weighed in, revising their house prices forecasts in light of the "modest positive surprises in the trading picture for UK house-builders in 2009".

The broker scaled back its forecast for the peak-to-trough decline in house prices to 30 per cent from 35p per cent, saying that while factors such as rising unemployment and weak lending levels were likely to cause further falls, "the risk of a significant overcorrection looks reduced" thanks to low interest rates, unprecedented policy action and ongoing supply restrictions.

Bovis, which is due to update the market at the end of this week, is well placed to cash in on more stable conditions, RBS said, highlighting the group's moves to cut costs, and its strategy of "returning to sector-average sales rates without over-intensive discounting", which together reduce net debt.

"In less volatile markets, and without the burden of debt concerns or strategy U-turns, the group should have time and resources to attempt existing land bank re-planning and reinvest in new land, either in the open market or by reinvigorating pull-through from its strategic plots," the broker said, upgrading Bovis, which gained 3.5 per cent or 13.2p to 389.75p, to "buy" from "sell".

RBS was less keen on Redrow, which is due to issue an update on Thursday. "The shares have gained sharply from their lows on improving housing market sentiment and hopes of a turnaround under Steve Morgan," the broker said. "Despite accounting for this we believe group NAV in four years (194p) will be lower than the current share price." In keeping with its view, RBS moved Redrow, which closed almost 1 per cent or 1.75p down at 204.25p, to "sell" from "hold".

Overall, the FTSE 100 was 41.37 points lighter at 4,194.91, while the FTSE 250 closed at 7,320.35, down 56.63 points, amid thin volumes. Resource-related stocks were under pressure on the benchmark index, as prices of leading commodities softened, with oil moving further away from $70 per barrel.

Among the miners, Lonmin, down more than 8 per cent or 99p at 1,060p, was the hardest hit as metals prices slipped, while Xstrata fell to 606p, down 7.5 per cent or 48.8p, and Antofagasta retreated to 566.5p, down 5.4 per cent or 32p.

In the oil and gas sector, Royal Dutch Shell eased to 1,463p, down just over 2 per cent or 31p, in response to the weakness in the price of oil. There was also some comment from HSBC, which moved the stock to "neutral" from "overweight". BG, which is rated "overweight", but the target price for which was scaled back to 1,295p from 1,425p by the same broker, was also weak, easing to 1004p, down 2 per cent or 20p.

Elsewhere, commercial property issues were in focus after Cazenove switched its stance on the sector to "neutral" from "underweight", helping British Land, one of its preferred plays, to stand firm at 381.75p, up 6p. The wider sector, including Land Securities, down 4p at 439.5p, and Liberty International, down 6.25p at 390p, was slightly lower.

Over on the FTSE 250, Tomkins gained almost 3 per cent or 4.25p to 150p, thanks to Bank of America-Merrill Lynch, which termed it a "stand out US recovery play". Highlighting the fact that the company generates almost 70 per cent of its sales on the other side of the Atlantic, the broker moved its recommendation to "buy" from "underperform", with a 200p target price, compared with 170p previously.

"Given extensive restructuring (some $150m of savings are targeted by 2011) we expect the group can deliver healthy earnings momentum even in an anaemic recovery scenario," Merrill said, forecasting a 55 per cent hike in clean earnings before interest and tax in 2010, and a 25 per cent rise in 2011.

Easyjet gained ground, rising to 273.75p, up 2.7 per cent or 7.25p, as the market welcomed the airline's June passenger statistics. Numis, which moved its recommendation on the stock to "add" from "hold" in response, was also pleased with the update.

Cazenove reiterated its "outperform" recommendation on DS Smith, which nonetheless eased 61p, down 1.6 per cent or 1p. The broker said that while the dividend cut at the full-year results last month may have disappointed some, it remained positive as "the group's operating performance has remained strong and cash flow generation robust, which arguably indicate that as economic conditions recover, so too will earnings and the payout".

Among smaller companies, shares in Phorm slumped by more than 40 per cent or 192.5p to 282.5p after BT said that it had no immediate plans to use the internet technology firm's Webwise service. BT, which was 1.3p ahead at 103.4p, said that, given its commitments to develop next generation broadband and television services, it had decided to "weigh up the balance of resources devoted to other opportunities", but offered hope by adding that it would monitor Phorm's progress with other ISPs and with Webwise before finalising its plans.