FTSE 100 movers: BAE Systems recovers; housebuilders hit by downgrades

London’s FTSE 100 was up 0.1% at 8,294.16 in afternoon trade on Monday.

BAE Systems was the standout gainer, having fallen sharply on Friday after Bank of America Merrill Lynch downgraded the shares to ‘underperform’ from ‘neutral’, citing the risk of potential US government spending cuts overseen by Elon Musk.

On Monday, Citi reiterated its ‘buy’ recommendation on the stock following the share price slump.

Citi noted that the shares were down around 4% "following a competitor downgrade that, we understand, highlights the risk to the US Defence budget following the creation of DOGE (Department of Government Efficiency)".

Citi said that while it understands these concerns, BAE Systems has similar expected profit growth to US peers, better free cash flow conversion, less exposure to the US DoD - therefore less risk from DOGE - and a much lower valuation, at 14.4x 2024 EV/EBIT versus the average 17.7x.

"We therefore conclude BAE Systems is a more attractive, lower risk investment and reiterate our buy recommendation," it said.

Vistry Group and Persimmon were both weaker after downgrades to ‘underperform’ from ‘sector perform’ at RBC Capital Markets.

As far Persimmon is concerned, RBC said third-quarter commentary on build costs and building regulation planning changes lead us to believe that the embedded margins in its landbank may be at risk of downgrades come the full-year results.

"It has invested in build and quality, but housebuilding is not a zero-sum game, and lower margins may lead to a lower premium for Persimmon in 2025," it said.

It noted that Vistry has issued two profit warnings in as many months. "Whilst we are not saying things necessarily come in threes we believe that whilst provisions and cost calculations remain unaudited there are risks to the downside," RBC said.

"In addition, with many of its peers trading below book value we believe that the risk/reward trade-off has not moved in Vistry's favour."

Taylor Wimpey also fell even as RBC retained its ‘outperform’ rating on the shares, saying it continues to believe it’s is one of the UK's best placed housebuilders to take advantage of planning reform.

FTSE 100 - Risers

BAE Systems (BA.) 1,252.50p 2.08%
Spirax Group (SPX) 7,315.00p 2.02%
Anglo American (AAL) 2,560.50p 1.59%
Admiral Group (ADM) 2,603.00p 1.56%
Pershing Square Holdings Ltd NPV (PSH) 3,820.00p 1.54%
Associated British Foods (ABF) 2,228.00p 1.36%
Bunzl (BNZL) 3,602.00p 1.24%
Beazley (BEZ) 786.00p 1.22%
M&G (MNG) 200.50p 1.16%
Melrose Industries (MRO) 580.80p 1.11%

FTSE 100 - Fallers

Vistry Group (VTY) 630.50p -3.89%
easyJet (EZJ) 542.60p -1.85%
Persimmon (PSN) 1,235.00p -1.83%
B&M European Value Retail S.A. (DI) (BME) 341.50p -1.56%
Intertek Group (ITRK) 4,648.00p -1.44%
IMI (IMI) 1,794.00p -1.43%
Taylor Wimpey (TW.) 129.15p -1.41%
Unite Group (UTG) 870.00p -1.36%
Auto Trader Group (AUTO) 827.80p -1.33%
Land Securities Group (LAND) 595.50p -1.24%