No sign of recovery in the UK
housing market; stick to quality
names with strong balance sheets
www.davy.ie
Bloomberg: DAVY<GO>
Research: +353 1 6148997
Institutional Equity Sales: +353 1 6792816 Davy Research
January 29, 2009
Robert Gardiner
robert.gardiner@davy.ie +353 1 6149004
Flor O'Donoghue
florence.o'donoghue@davy.ie +353 1 6148741
Tim Cahill
tim.cahill@davy.ie +353 1 6148875
Barry Dixon
barry.dixon@davy.ie +353 1 6148922
Outlook for the UK housing market remains poor
• The outlook for the housing market remains
extremely poor for 2009. On a positive note, interest
rates are falling and there is no significant oversupply
issue.
• However, the industry is faced with tighter credit
conditions, rising unemployment and diminishing
consumer confidence. In this environment we see no
short-term recovery for the sector.
• Even if government measures to kick-start new
lending do eventually work, it will take some time for
both confidence and mortgage lending to pick up
significantly.
Still too early to call a recovery; stick to quality builders
with sound balance sheets
• With mortgage lending restricted and consumer
confidence close to all-time lows, we think it is too
early to call a recovery in the sector. That is likely to
be a 2010 event.
• We do, however, see longer-term value in builders
with solid balance sheets, experienced management
teams and a strong track record of managing through
the cycle.
• In this regard, we view Bellway and Bovis Homes as
the stand-out picks on a long-term view.
• We remain negative on Barratt Developments,
Berkeley Group, Redrow and Taylor Wimpey.

Contents
Executive summary 3
Valuations may look interesting, but balance sheet strength is more
important 4
We continue to favour the high-quality builders with low debt levels 5
Investment case 6
Bellway 6
Bovis Homes 6
Persimmon 6
Barratt Developments 6
Berkeley Group 6
Redrow 7
Taylor Wimpey 7
Cash and debt reduction the focus of recent updates 8
Further write-downs flagged across the sector 9
No short-term recovery on the horizon 11
Mortgage approvals and house prices showing no signs of turning 12
But at least the housing market does not have a US-style oversupply problem 13
Lead indicators complicated by restrictive lending 13
Newsflow, forecast revisions, valuation and company analysis 15
Barratt Developments H1 trading update (January 15th) 15
Bellway AGM statement (January 16th) 18
Bovis Homes full-year trading update (January 8th) 21
Persimmon full-year trading update (January 8th) 24
Redrow H1 trading update (January 14th) 27
Taylor Wimpey full-year trading update (January 13th) 30
Berkeley Group H1 results (December 5th) 33
Contacts 38
Important disclosures 39

Executive summary
Outlook uncertain for the UK housing market
 The outlook for the housing market remains extremely uncertain for
2009. On a positive note, interest rates are falling and there is no
significant oversupply issue.
 However, the industry is faced with tighter credit conditions, low
income growth, rising unemployment and the widespread expectation
that house prices have further to fall. In this environment, potential
buyers are unlikely to return en masse to the housing market.
 Even if government measures to kick-start new lending do work, it will
take time for confidence and mortgage lending to pick up significantly.
 We view falling house prices as the quickest way to the bottom of the
current downturn.
Trading updates focus on cash and debt reduction
 It has been clear for some time that the UK builders have been overstretched
financially.
 It was therefore no surprise that the trading statements from the sector
over the past two weeks focussed almost universally on cash generation
and debt reduction. In this regard, there were a few positive surprises
boosted by early repayment of taxes resulting from asset impairments.
 Most builders expect a recovery to be unlikely before H2 2009 and
more likely to occur in 2010. We subscribe to the latter view.
 Forward order books have seen significant falls, while further margin
erosion was flagged by a number of builders. With price competition
intensifying, we expect margins will continue to be squeezed in the
coming months.
 This price competition is also placing a strain on the underlying values
of development land and work-in-progress. All six builders which
provided updates to the market flagged further write-downs to come.
Still too early to buy; Bellway and Bovis stand out on a long-term
relative view; avoid Redrow and Taylor Wimpey
 With mortgage lending restricted and consumer confidence close to
all-time lows, we think it is too early to call a recovery in the sector.
That is likely to be a 2010 event.
 We do, however, see value in builders with solid balance sheets,
experienced management teams and a strong track record of managing
through the cycle.
 In this regard and with an eye to future consolidation, we view Bellway
and Bovis Homes as the stand-out picks on a long-term relative view.
 Persimmon has long been the sector bellwether and one of our top
picks in the sector. However, we remain neutral on the stock until the
group's refinancing is resolved.
 We remain negative on Barratt Developments, Berkeley Group,
Redrow and Taylor Wimpey.

Valuations may look interesting, but
balance sheet strength is more
important
The sector has traded lower following a good run over the past three
months. This rally was a result of successive rate cuts, government efforts
to improve affordability and speculation surrounding Taylor Wimpey's
refinancing discussions. However, this initial optimism appears to have
faded in recent weeks, and the sector is now flat year-to-date.