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Market report: Monday close

By Mickey Clark for MailOnline
Updated: 12:06 EDT, 11 August 2008

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Good news at long last for battered housebuilders. Well, sort of. Goldman Sachs has been telling clients today that many of them are starting to look oversold and that the risk-reward ratio for investors wanting to test the water is looking more favourable.

Movers: Latest from thestock echange

That was the signal to start squeezing the bears again and shares of the leading builders were marked sharply higher. Barratt Developments led with a rise of 30⅖p to 158⅖p, also fuelled by the news that Polaris Capital Management had bought an extra 1.5m shares, raising its holding to 21.4m shares, or 6.18% of the company. Others going better included Taylor Wimpey, up at 7⅖p, Persimmon, 40&frac75;p to 410½p, Bovis Homes, 32½p to 480⅖p, and Bellway, 40&frac50;p to 648p.

The American broking house says the current sub-sector share prices are discounting average total writedowns of 46% of 2007 book value by the end of next year to reflect the shrinking value of their land banks. Housebuilders in the US have made writedowns since the start of the current downturn in 2006 averaging 60% of total book value. The worst of the writedowns are seen in Redrow, Taylor Wimpey and Barratt.

Goldman says the improved risk-reward ratio also takes into account the possibility of companies turning to shareholders for extra funds in the shape of rights issues. Berkeley remains on its Conviction Sell list and along with Persimmon and Bovis provide the biggest risk to the broker's new target prices. But it has removed Bovis from the list and upgraded Bellway from sell to neutral.

Another builder, Crest Nicholson, is reckoned to have obtained £100m of emergency funding from HBOS, which last month tapped the market for £4bn of extra cash.

As prices rose, the FTSE 100 index climbed 52.6 to close at 5541.8. In New York this afternoon, shares gave back some of Friday's gains. The Dow fell 15.6 to 11,718.8.

Goldman Sachs has downgraded the UK's biggest credit rating agency, Experian, 5p cheaper at 409⅖p, from neutral to sell and slashed its price from 421p to 375p. Goldman expects Experian's credit-related operations to remain under pressure and that this will spread further across the business as clients become increasingly cautious and price-sensitive. The broker has reduced its 2009 earnings a share forecast by 7% and that for 2010 by 10%.

Goldman said unless Experian demonstrated it could sustain growth against a much changed credit environment, it would not return to its post-demerger rating.

BG Group rose 2p to 1092p on the back of an oil discovery in the North Sea off Norway, but later fell back to close unchanged. On Friday, BG announced it had made a material discovery in Brazil's oil-rich Santos basin. Meanwhile, it is pressing ahead with its aggressive bid for Australia's origin Energy.

Aquarius Platinum, up 6⅖p at 431⅖p, has been raised from neutral to overweight by HSBC and from neutral to buy by rival UBS following last week's results from the platinum miner. HSBC has also increased its target from 630p to 700p, but UBS has lowered its target from 865p to 650p.

The broker said its new price target is based on a 15% discount to the implied multiple that Xstrata, down 35p at 2955p, appears to be paying for Lonmin, 13p lower at 3409p. Weekend reports claimed Xstrata had put together a £5bn overdraft to help finance the acquisition of Lonmin.

Copper miner Kazakhmys spent a further £402m topping up its holding in Eurasian Natural Resources, down 64p at 1060p, but denies it plans to bid. Kazakhmys has bought a further 35.7m ENRC shares, taking its holding to 322m shares, or 25% of the company. In March, Kazakhmys, 14p off at 1234p, rejected an offer from ENRC, the world's biggest producer of ferrochrome and an exporter of iron ore, worth 1550p a share.

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Tomorrow's agenda

In a busy day for economic data, July's Consumer Prices Index - the official measure of inflation - will be the most closely watched. Last month, inflation rose to 3.8%, far above the Bank of England's 2% target and the highest reading since rate-setting powers were handed to the Bank's monetary policy committee in 1997. There will also be an update from the struggling property and retail sectors, with the British Retail consortium's sales monitor and the Royal Institution of chartered Surveyors' housing market survey. Both are tipped to add to the economic gloom.

Recently merged financial news giant Thomson Reuters posts second-quarter results. Analysts are expecting figures slightly above initial forecasts but remain concerned over the outlook for the next few years. Reuters' revenue slumped 17% in the 2002 bear market and while it is expected to have a better run time around, earnings could still take a hit.

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