Competition remains fierce in the UK construction sector, but the longer-term outlook for the large players is relatively bright. Major works that could come to fruition include a London super sewer, the HS2 high-speed railway and even a new London airport. The trouble is that none of these projects has made it to the drawing board and the work list of new big projects in 2013 looks pretty thin. Even so, construction companies still possess impressive order books, not least because of a move to diversify their revenue streams. Most now provide non-discretionary work on the services side such as refuse collection outsourced by local authorities, obliged to work with smaller budgets.
This has all helped to mitigate the effects of the economic downturn. Inevitably, some work has been put on hold until there is more money, but there are signs that the situation will improve. Private Finance Initiatives (PFIs) have now been revived in a slightly modified form, even though it will probably be a year before new PFI work is translated into any shovels being lifted. There is also a guaranteed revenue stream waiting in the wings as the government formulates its energy policy. Whatever the outcome, one fact for the energy sector is clear - more power generation is needed to avoid the threat of power cuts as more nuclear power stations reach the end of their working lives.
But, while managing through a downturn is hard going, there are also hidden risks to construction players when signs of a recovery do start to emerge. It's at that point that margins can suffer as subcontractors shop around for the best rates and inflation starts to accelerate. Most big contracts lasting much more than a year, therefore, have escalator clauses built in, although most small contracts do not.
| COMPANY NAME | LATEST PRICE (P) | MARKET VALUE (£M) | PE RATIO | DIVIDEND YIELD (%) | PERCENTAGE CHANGE IN 2012 | LAST IC VIEW |
| BALFOUR BEATTY | 281 | 1932 | 7.1 | 5 | 3.4 | Hold, 256p 8 Nov 2012 |
| CRH | 1283 | 9320 | 18.3 | 4.3 | -2.5 | Sell, 1,147p 13 Nov 2012 |
| GALLIFORD TRY | 752 | 615 | 12.3 | 4 | 56.6 | Buy, 685p, 18 Sep 2012 |
| KIER | 1303 | 518 | 8.3 | 5.1 | -2.5 | Buy, 1,177p 3 Dec 2012 |
