Investors ignore Barratt’s positive note as shares fall again

After a day of solid gains, housebuilders led the biggest fallers in early trade July 13, 2016 / Isla MacFarlane
Investors ignore Barratt’s positive note as shares fall again

Barratt Developments led a fall in housebuilders’ share prices this morning, despite the developer issuing a trading statement with the promise of a 20% rise in pre-tax profits.

Housebuilders were among the biggest fallers in early trade, led by Barratt Developments. Barratt Developments slipped over four per cent, followed by Berkeley, Taylor Wimpey and Persimmon, all falling by over two per cent.

Barratt Developments said it is anticipating a pre-tax profit of £680 million, following a five per cent rise in completions, a 10% rise in sales prices and an 18% rise in forward sales. The developer also expected a solid year-end net cash balance of c. £590 million, a 68% surge from 2015, driven by completion volumes and the timing of land payments.

However, the developer also mentioned the EU referendum, and the faintest whiff of uncertainty was enough to deter nervous investors. “Following the EU referendum, it is too early to say what the impact of the uncertainty facing the UK economy will be,” the trading statement said.

Unfortunately, the property sector is among the most vulnerable to market sentiment. Barratt Developments’ mild caution came after a day of strong gains; investors are now pausing while a new Prime Minister moves into Number 10 and the Bank of England mulls a cut to interest rates.

“The UK public voted for Brexit and the effect on housebuilders has been as swift and vicious as it was predictable,” said Nikolas Xenofontos, Director of Risk at EastMarkets. “Housing reservations had already dropt before the vote partly due to the new stamp duty on second or rental homes, so with the uncertainty of a looming Brexit, a possible recession, falling unemployment and consumer confidence, it’s easy to see why the markets reacted instantaneously.

“While many of the firms had learned the lessons of the 2008 crisis and are better liquated, some have had their yearly profits wiped out. Similar to the 2008 crash, three of the largest real estate funds – Standard Life, Aviva and M&G, have halted trading, freezing 9.1 billion pounds.”

However, many analysts, including those of UBS and AJ Bell, have reminded investors that market fundamentals remain in housebuilders’ favour. “We have delivered another strong performance for the year,” said Barratt Homes in its trading statement. “The disciplined growth in completion volumes reflects the strength of our sector leading build and sales teams.”

“The sector continues to receive focused government support, mortgage availability is good and there remains an undersupply of new homes. With a strong balance sheet and forward order book, and industry leading quality and customer service, we remain confident in the positive fundamentals of both the housing sector and our business,” it added.

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