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Barratt Developments (BDEV) 394.5p

Fundamentals show the UK housing market says is enduring one of its toughest times since the property crisis in the early 1990s. House prices are sky-high and stricter lending after the credit crunch means deals fail if they begin at all. Repossessions and negative equity are real dangers going forward, and house builders’ share prices could lose even the recent modest gains. Barratt’s pretty decent results at the end of February still showed a 15% fall in pro-forma completions and highlighted Barratt’s gearing level at 60%, quite high compared with peers. The higher cost of finance for house builders today not only means higher interest charges will hit the profit & loss account, but also that it is more difficult for them to trade in land, which is still financed partly with borrowed money. We suggest going short, looking for yet another correction in the company’s share price. The Bank of England’s decision on interest rates will be a catalyst but the medium-term outlook is bleak.

ACTION: SELL Barratt Devs. • Target 355p • Stop loss 422p

TIME TARGET: 6 WEEKS