MARKET REPORT: Savills shares sink into the red after broker downgrade

Savills shares sank into the red amid mounting fears over the outlook for the property market.

On a bruising day for the FTSE 250 estate agent, the stock tumbled 9.4 per cent, or 88p, to 851p after Peel Hunt slashed its revenue and profit forecasts for this year through to the end of 2024.

The broker also lowered its ‘buy’ rating to ‘add’ and cut the target price to 1000p from 1275p.

Peel Hunt said Savills is a ‘high-quality business’ but the downgrade reflected a slowdown in property transactions and heightened economic uncertainty.

The gloomy update comes as rising interest rates push up the cost of mortgages and loans on commercial property.

Peel Hunt analyst Clyde Lewis said: ‘Commercial transactions have dropped sharply in the last couple of months, especially in the UK.’

He also warned Covid lockdowns in China are ‘likely to have hit that market hard’ in a further blow to Savills. 

And Lewis said the housing market has been ‘softer’ – although he added that the prime London market, where properties cost millions of pounds, ‘has held up better’ than other areas.

While the estate agent faces a tougher time in the short term as buyers delay making decisions due to increased market volatility, Peel Hunt remained upbeat about Savills’ future prospects.

‘The outlook for short-term forecasts is not great,’ the analysts said, before adding: ‘We believe the group remains an attractive investment, capable of delivering decent growth on a three to five-year time horizon.’

The FTSE 100 gained 0.2 per cent, or 11.31 points, to 7567.54 but the FTSE 250 fell 0.2 per cent, or 33.7 points, to 19329.58. 

Asian-focused stocks led the charge on London’s top index amid hopes Covid restrictions in China could ease.

Prudential gained 5.3 per cent, or 55p, to 1085.5p, while miners were also in the black as metal prices rose. Anglo American lifted 1.2 per cent, or 41p, to 3337p, Rio Tinto added 1.6 per cent, or 87p, to 5671p and Fresnillo rose 0.2 per cent, or 1.4p, to 897p.

The price of Brent crude edged higher, hovering close to $90 a barrel, after the Opec+ group of oil-producing nations, which includes Russia and Saudi Arabia, maintained production levels over the weekend. It helped BP inch up 0.5 per cent, or 2.6p, to 483.5p and Shell added 0.4 per cent, or 10p, to 2375.5p.

Barratt Developments and Persimmon swung into reverse as the only two blue-chip housebuilders which failed to receive a ‘buy’ rating from Jefferies. Shares in Barratt Developments sank 0.9 per cent, or 3.8p, to 405.6p and Persimmon fell 1.5 per cent, or 19p, to 1276.5p.

There was better news for Bellway, with Jefferies hiking its rating to ‘buy’ from ‘hold’ because the stock is ‘too cheap’. Shares climbed 1.2 per cent, or 23p, to 1967p.

Mike Ashley’s Frasers Group inched up 1.2 per cent, or 10.5p, to 898.5p after it received a vote of confidence from Shore Capital.

The broker began its coverage by issuing a ‘buy’ rating and target price of 1200p, with Frasers – which owns Sports Direct, Jack Wills and Flannels – well-positioned to ‘weather the storm’ hurtling towards the retail sector.

Serica Energy plunged 8.7 per cent, or 27.5p, to 289.5p after the North Sea producer said it would temporarily suspend the drilling of a well. 

The group had found some gas but said it still needed to work out if there was enough to make money. 

Serica previously said the well was ‘potentially transformational’ and estimated it could contain around 300bn cubic feet of gas – the equivalent of 60m barrels of oil.

Video games firm Keywords bought San Francisco-based digital support platform Helpshift in a deal worth up to £61.6million. Shares fell 4.1 per cent, or 120p, to 2828p.