UK: Housebuilders shares fall after gloomy note

The embattled housebuilding sector suffered a further blow today after a dire broker note warned of sliding profits and dividends among the leading firms.

Shares in construction stocks fell by as much as 10% after UBS placed sell ratings on three firms, slashed dividend forecasts by up to two-thirds and said profits would be under “severe pressure” this year and next.

The sector has been one of the biggest victims of the credit crunch and wider economic slowdown, with tighter mortgage availability squeezing sales by as much as 30% this year.

UBS’s warning that market trends were set to worsen sent shares in Britain’s biggest housebuilder Taylor Wimpey down more than 6%. The stock is now trading around a seventh of its value a year ago. Fellow FTSE 250 members Redrow and Barratt Developments also fell 8% and 7% respectively.

Shares in blue-chip rival Persimmon, which owns Charles Church, were nearly 3% lower, repeating a 3% slide yesterday amid similar market concerns.

UBS analyst Mark Stockdale said: “In light of the rapidly worsening conditions in UK house building...we think it is now becoming inevitable that sector profits are going to come under extreme pressure over the next year.

“It is hard to see where the quick fix comes to the problems in the mortgage market and, consequently, it is clear to us that this is now a severe problem for profits in both 2008 and 2009.”

He slashed his forecast for Barratt’s dividend payout by nearly 70% to 12.23p a share, and Taylor Wimpey by two-thirds to 5.25p.

Mr Stockdale also cut his share price targets for the UK’s seven main housebuilders, as well as downgrading shares in Bellway, Persimmon and Redrow to a sell recommendation.

He went on to raise the spectre of rights issues from some of the most under-pressure builders to help shore up their balance sheets amid the slowdown.

“We see no catalyst to buy the sector until...the extent of equity raisings becomes clear,” Mr Stockdale said.

Last week the Bank of England revealed that the number of mortgages approved for people buying a new home fell to an all-time low of 58,000 in April. The number of approvals has fallen to just over half the 107,000 seen 12 months earlier.

Mr Stockdale said the mortgage market could remain severely constrained well into 2009, with a concurrent house price fall of up to 20% likely during that time.