Shares in building materials and construction companies have made a strong recovery since the onset of the pandemic. A home improvement boom that began during the first lockdown has continued its momentum since, as has a housing market that was stimulated by stamp duty holidays. In 2022, though, some of the heat has come out of the sector.
Annual house price growth hit a 17-year high in March, but as base rates rise, Pantheon Macroeconomics forecasts that fixed two-year mortgage rates are likely to climb to 2.70 per cent by the year-end, up from 2.12 per cent last month. With household income set to decline by more than 2.5 per cent this year – the most since records began in 1947 – people will not be able to devote more income to their home without “having to make painful cutbacks elsewhere”, the firm said.
Others disagree. Given that demand continues to outstrip available supply, the Royal Institution of Chartered Surveyors' said members in its latest survey expect annual house prices to grow by an average of 4 per cent over the next five years.
But concern about a slowdown in housing is just one of the clouds on the horizon for contractors and building materials suppliers. The Construction Products Association forecasts a slowdown in the growth of the building materials market of 4.3 per cent this year and 2.5 per cent in 2023, compared with 13.3 per cent in 2021, at the same time as the cost of materials, energy, transport and labour are ramping up. Energy is a particular focus for intensive users such as brick, glass and steel manufacturers.
As a result, many companies in the sector have witnessed sell-offs over the past six months. Shares in building materials companies are down 15 per cent this year, while builders merchants' shares are 22 per cent lower, according to Peel Hunt.
| NAME | Price (p) | Market cap (£mn) | 12-month (%) | Fwd PE | Yield (%) | Last IC View |
| Balfour Beatty | 262 | 1,657 | -16.0 | 10 | 3.6 | Hold, 239p, 10 Mar 2022 |
| CRH | 3,251 | 24,894 | -5.0 | 13 | 3.0 | Buy, 3,336p, 3 Mar 2022 |
| DCC | 6,000 | 5,919 | -6.0 | 14 | 2.9 | Hold, 6,254p, 9 Nov 2021 |
| Ferguson | 10,790 | 23,372 | 17.0 | 16 | 2.1 | Hold, 11,605p, 15 Mar 2022 |
| Genuit | 458 | 1,137 | -18.0 | 13 | 3.0 | Buy, 505p, 15 Mar 2022 |
| Grafton Group | 1,031 | 2,470 | -1.0 | 13 | 2.9 | Hold, 1,309p, 25 Aug 2021 |
| Howden Joinery Group | 787 | 4,607 | 0.0 | 14 | 2.6 | Buy, 750p, 24 Feb 2022 |
| Ibstock | 181 | 741 | -18.0 | 11 | 4.8 | Hold, 163p, 9 Mar 2022 |
| Marshalls | 647 | 1,394 | -10.0 | 19 | 2.5 | Hold, 660p, 17 Mar 2022 |
| Morgan Sindall Group | 2,400 | 1,113 | 28.0 | 11 | 4.1 | Buy, 2,200p, 24 Feb 2022 |
| Smiths Group | 1,483 | 5,639 | -9.0 | 20 | 2.7 | Buy, 1,486p, 25 Mar 2022 |
| Travis Perkins | 1,320 | 2,787 | -13.0 | 11 | 3.3 | Hold, 1,437p, 1 Mar 2022 |
| Tyman | 307 | 602 | -26.0 | 9 | 4.3 | Hold, 172p, 29 Jul 2020 |
| Volution Group | 432 | 854 | 0.0 | 19 | 1.6 | Hold, 438p, 10 Mar 2022 |
| Source: FactSet |
