Broker snap: Housebuilders' rally a 'false dawn'

24th Jul 2009 11:50

KBC Peel Hunt, a long time bear on the housebuilding sector, is once again exhorting its clients to take profits on the housebuilders in the wake of what it regards as "a positive spin" put on housing market figures by property web site Rightmove."Rightmove has hailed the bottom of the housing market, citing a 20% rise in new sellers as evidence. A rise in new sellers in fact has the opposite effect, correcting the buyer imbalance now driving the market," KBC's Robin Hardy argues.Hardy is also sceptical about the soothing noises coming from the industry during the recent round of trading updates. These "painted a picture of optimism: price stability, scope for margins to begin re-building and asset values to stop falling. This was based on the distorted price environment, a drift from second-hand into new homes and the favourable selling conditions resulting from available stock," Hardy believes.The new build industry faces a "hard sell in the autumn," in Hardy's view, and "hopes of a return to selling 'off-plan' are a pipedream."Turning to specific stocks, KBC believes that the recent advance by Barratt Developments - up almost 15% over the last week - probably makes a large cash call more likely, with the broker guessing that the company would tap the market for around £500m. With or without an equity issue, KBC believes Barratt's valuation is "stretched on an NAV [net asset value] or EPS [earnings per share] basis."The broker concedes that bulls are driving the share price direction of housebuilders at the moment but claims "the false dawn is coming to an end; a negative tone is set to return but not just yet."Investors dedicated to maintaining exposure to the sector are advised to switch into "less exposed stocks such as Bellway, weaker performers such as Taylor Wimpey or stocks allied to transactions such as Travis Perkins."