Barratt Developments and Bovis Homes shares slide on UBS downgrade

(ShareCast News) - Barratt Developments and Bovis Homes were under the cosh on Tuesday after UBS downgraded the housebuilders to 'neutral' from 'buy' as it reviewed the sector.UBS said market dynamics have been "significantly more benign" in July and August following the UK's vote to leave the European Union on 23 June. The bank noted that after an initial drop reservation rates have recovered and were on average up 3% year-on-year in July and August against a tough basis of comparison. RICS data also showed a stabilisation in price expectations following an initial decline."Following evidence suggesting UK residential market trends have been more resilient than expected than immediately after the EU Referendum, we move to a scenario of 0% volume growth and 0% net inflation, from previously -15% and -5%, respectively for 2017/18E," UBS said."While current run rates suggest better dynamics than this, we apply some prudence given risks of a lagged impact on the sector. Shares have recovered about 40% since the bottom but remain about 15% below the 23 June level."UBS said it top picks in the sector remain Berkeley, Bellway and Persimmon, reiterating a 'buy' rating on the stocks. It also maintained its 'buy' rating on Crest Nicholson, Redrow and Taylor Wimpey and kept its 'sell' rating on McCarthy & Stone.The bank said secondary market trends have been "somewhat softer" with lower transactions, including in high-end London properties. However, UBS believes the slowdown may be attributable to the increase in stamp duty in April rather than the EU Referendum.UBS added that Help to Buy has been a key driver of support for the new build sector. It expects the shared equity element of Help to Buy to be maintained given the success of stimulating new build construction.The bank concluded: "The initial exercise following the EU Referendum was to calibrate the potential downside risk which we concluded was relatively low compared to upside. After the rebound, we believe the market is pricing in some modest house price deflation. Considering (1) attractive yields of 6.6% and 7.7x P/E CY17E; (2) supportive government policy; (3) strong balance sheets which are mostly net cash, we remain positive on the sector although become more balanced in our recommendation profile."Shares in Barratt Developments dropped 1.38% to 472.40p and shares Bovis Homes fell 1.38% to 855.5p at 0934 BST.