Weak trading statements from two major building material suppliers have shaken the foundations of a host of housebuilding related stocks and raised questions about the wider housing trend.
Travis Perkins (TPK) and SIG (SHI) were the two companies arguably responsible for awakening investor fears about the health of sectors intrinsically linked to the housing market thanks to pessimistic trading updates. This in turn knocked the likes of other DIY specialists Wolseley (WOS), Kingfisher (KGF) and Grafton (ie:GN5).
The downturn in trading at Travis Perkins, a bellwether for domestic housing transaction, was less devastating than some of its peers, but like-for-like sales growth of 2.6 per cent didn't look so impressive against the 5.7 per cent average achieved in the previous two quarters. Markets also balked at earnings growth expectations being at the lower end of forecasts.
Management said volumes recovered in October, which chimes with the view from broker Barclays that there is usually a six-month lag for fluctuations in the housing sector to be reflected in home upgrade spend. Barclays therefore believes business should now pick up.
Liberum building materials and housebuilders analyst Charlie Campbell was even more bullish on Travis Perkins' prospects. Whereas Barclays remained concerned that fragile consumer confidence and rate rises next year could stifle housing demand, Mr Campbell claimed all the leading indicators - such as planning permission growth and mortgage approvals - were improving.
Sadly for SIG, Liberum didn't offer the same assurances for trading on the continent. The insulation specialist's shares crashed 21 per cent after it warned demand in core European markets had tailed off and responded by cutting full-year profit forecasts. Management also reported waning appetite in its UK roofing operations, but it was conditions in Europe, and France in particular, that dragged like-for-like sales growth down to just 0.2 per cent in the nine months to September.
Those tough conditions, which the statement claimed showed no sign of easing, prompted Liberum to downgrade its advice to hold. Mr Campbell, who noted that SIG's self-improvement gains had been eaten away by difficult trading, reckoned the group would continue to struggle in the UK as it loses market share to Travis Perkins. He was similarly concerned by recent analysis suggesting growing consumer confidence in France was running out of steam, a point echoed by some of SIG's peers.
Interestingly, an AGM statement from Alumasc (ALU) on the same day also hinted at roofing-related problems. Despite revealing encouraging demand for its premium building products, a mention that capacity constraints had caused some project delays sent the group's shares tumbling 14 per cent.
To shed more light on what was a brief update, a spokesperson for Alumasc told Investors Chronicle the company had provided products for the delayed projects but the contractor did not have the staff to complete the job. He added that this was a short-term issue that should be compensated for in the second half.
Meanwhile, FinnCap analyst David Buxton dismissed suggestions that the negative reaction may have been triggered by news of Travis Perkins and SIG's shortfalls, as Alumasc sells original equipment, rather than repair, maintenance and improvement products. Instead, he reckoned the sell-off could simply be a case of profit-taking.
"Having seen a very marked re-rating since the disposal of AMC and a good set of results, I think the market has looked to take some profit," he said. Mr Buxton added he thought this was "an error" given management had said the issues were "short-term technical glitches, not severe shelving of projects".
