Dire warning for construction firms

Last Modified: 04 Jun 2008
Source: ITN

Shares in construction stocks have fallen by as much as 10 per cent after a dire warning of sliding profits and dividends among top firms.

The embattled housebuilding sector suffered a further blow when UBS placed sell ratings on Bellway, Persimmon and Redrow and slashed dividend forecasts by up to two-thirds, saying profits will 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 per cent this year.

UBS's warning that market trends are set to worsen sent Taylor Wimpey shares over 6 per cent lower. 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 per cent and 7 per cent respectively.

Shares in blue-chip rival Persimmon, which owns Charles Church, were nearly 3 per cent lower, repeating a 3 per cent slide on Tuesday 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."

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.

Taylor Wimpey, which sold 20,690 homes in the UK during 2007, warned in April that orders were 26 per cent lower this year.

The firm made an overall pre-tax loss of £19.5 million last year. Persimmon also announced that orders were 26 per cent down year on year, and that it was putting new projects on hold amid the market woes.

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