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12 June 2008

Shares dive 40% at Barratt Developments

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by Kay Mitchell

Shares dive 40% at Barratt Developments

Barratt Developments, the UK’s second biggest housebuilder by volume, saw its shares dive 40% yesterday.

Barratt‘s shares have been heavily sold because of its high gearing but the company said it remained confident and confirmed that its net debt would remain at £1.7 billion at the end of June, in line with previous forecasts and added that it would complete 18,300 houses this year and produce pre-tax profits of £395 million.

Merrill Lynch yesterday warned that the housing market could face a repeat of the 1990s crash. Merrill said there is growing evidence of consumers behaving in a manner similar to that seen in the early 1990s, in that concerns over job security and falling house prices are leading to a reluctance to make a house purchase.

Around £5 billion has been wiped off the value off the big housebuilders including Barratts, Persimmon and Taylor Wimpey since the start of the year.

Barratt’s said it continues to operate within its £2.6 billion of committed facilities and its banking covenants and insisted that any write-downs on the value of its land bank in the current year would be limited.

Once year-end numbers are confirmed and a detailed review of the company’s 600 developments is completed with our auditors, the company will provide a full update, added the company.

The entire housebuilding sector has been the subject of heavy selling for the second day running. Another highly-geared builder, Taylor Wimpey, also saw its share price plummet by 40%.

Shares in Persimmon yesterday were also down 9% in early trading to 353p – their lowest level for 5 years. Persimmon has now been relegated from the FTSE.

Bellway’s shares are down 66% this year alone. The company is now valued at £580 million, compared with £1.58 billion a year ago.

Berkeley Group shares also fell 9% after Goldman Sachs reduced its recommendation on the UK housebuilder to ‘sell‘ from ‘neutral and significantly cut its target price from 819.9p to 582.3p.

Merrill Lynch downgraded six housebuilders in the sector: cutting Barratt Developments, Bellway, Berkeley, Galliford Try and Redrow from ‘neutral‘ to ‘underperform, while Persimmon was moved to ‘neutral‘ from ‘buy, according to traders.

There are concerns throughout the housebuilding industry that many will be forced to make significant write-downs believe analysts.

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