Shares digital

Recent news that Tulloch Homes, a Scottish house builder, froze its plans to float on Aim at the end of last month added to concerns about the health of the sector, which has plunged since its peak in 2006.

This week, companies start the round of trading statements, beginning with Persimmon (PSN), Redrow (RDW) and Bovis (BVS), but while the statements should unsurprisingly say that trading hasn’t been buoyant in the second half of 2007, the investment case for some of these shares is strong, says Leslie Kent, director of corporate sales at JM Finn Capital Markets.

Ahead of the statements, ABN Amro published a bearish note, which cut EPS for the major house builders by 19% for full years 2008 and 2009, but Kent points out that things are very different from the 1990s, when some companies saw their profit and loss accounts badly damaged in the midst of a housing crash.

Fears that companies will write down big chunks of the value of their land holdings, which have driven share prices, are misplaced, Kent adds, and the market’s sell stance is way overcooked. ‘Today land portfolios are mostly financed by equity rather than debt. Managers will not repeat the mistakes and won’t make hefty write downs.’

Shares says: Valuations are close to their lowest and it may be worth getting on board before everybody else does.

BUY Persimmon, Redrow, Bovis

HOLD Barratt

by: Carlo Svaluto