Skip to main navigation or content
The past week has held a barrage of gloomy news for the construction industry with the UK’s largest housebuilder, Persimmon, pulling the development of scheduled new sites, and Savills predicting that only 60 per cent of planned shopping centre developments will go ahead over the next five years. So you would have thought the quoted hire companies that provide builders with their tools would be feeling the strain. Not a bit of it. “They’re not seeing anything yet,” says Mark Fleetwood, analyst at Brewin Dolphin, “What they’re finding really difficult is marrying what investors are predicting for them with what they’re seeing on the ground.”
Advertising
One key reason that hire companies are calm is the throng of big infrastructure projects, such as the M25 widening and the 2012 Olympics, which are set to buoy the market for some years to come. “Speculative areas are weak and we’ve seen some cancellations,” says Landsbanki construction analyst David Phillips, “but prime [blue chip developments] and the public sector are still good.”
What’s more, spending commitments made during the heat of the booming commercial property market of recent years still have some way to run. Kelvin Davidson of Capital Economics says: “Certainly, in offices a lot of the stuff in the development pipeline is actually being built, and we think the same is true of retail.”
Also, many hire companies have minimal exposure to housebuilding. Speedy Hire , for instance, puts its exposure at a mere 2 per cent and for VP it’s 10 per cent. There could even be a silver lining for hire companies from housebuilders’ woes. “National hire players can deliver big savings to housebuilders,” says VP’s managing director Neil Stothard. “The desire to cut costs could actually boost outsourcing.”
But, all said, it’s increasingly hard to believe that this sector can escape a soaking from the gathering economic storm clouds. Valuations are low, but there is considerable potential for forecast downgrades.
VP’s low gearing and focus on specialist markets makes it look somewhat more attractive than its peers, good value at 320p. Ashtead’s high gearing and exposure to the teetering US market means it is high enough at 61p.
The UK’s No.1 Stockbroker
Access a selection of share tips, comprehensive company analysis and full financial data on listed companies. Plus portfolio tools with advanced alerts when you register for free here.
Advertorial Feature
With so many big moves in the world's financial markets, there have seldom been more opportunities around for spread traders. Isn't it time you joined them?
by Dominic Piccarda
© The Financial Times Limited 2008. All rights reserved. "Investors Chronicle", "FT" and "Financial Times" are trademarks of The Financial Times Limited. No part of these web pages may be reproduced or transmitted to or stored in any other website or other form of electronic retrieval system, without prior permission in writing from the editor.
Warning: Do remember, particularly if you are new to stock market investment that the prices of shares and other investments can fall sharply. You may not get back the money you originally invested. The material here is for general information only and is not intended to be relied upon for individual investment decisions. Take independent advice before making such decisions. This site is aimed at UK residents only. To read more please see our Important Warning
-IC-1.5.4a-prod - 31/10/2008 13:11:34 - carlos.princz
