The collapse of Carillion helped to concentrate minds on the toxic combination of wafer-thin margins and high levels of debt that are relevant to some companies in the construction sector. It was also a bad time for companies in the supply chain, most of which suffered some fallout.
All of this came at a time when the political and economic climate remained just about as unhelpful as it’s possible to be. The construction side was also hit by rising wage and material costs eating into already meagre margins.
The major supporting factor has been the housebuilding sector, which has continued to prop up demand for everything from bricks to windows and doors. The worry here, though, is that even this sector of the market is not immune to gravity, and if output slows materially the supply chain will be hit yet again.
However, there has been a measure of underlying resilience, and the latest surveys suggesting that the sector ended 2018 on a stronger footing compared with the start of the year. So while commercial construction has weakened, this has been offset by an improvement in civil engineering activity. That lower demand in commercial construction at least took some of the upward pressure on input prices, but overall output is likely to remain constrained by the continued shortage in skilled labour.
As well as new construction, the sector also relies on activity in the repair, maintenance and improvement (RMI) sector. Local authority spending here has been affected by a switch in resources to rectifying faults in high-rise cladding, and while the private RMI remains flat, an improvement in average wages could be supportive, although Brexit worries appear to be the prevailing source of headwinds. However, infrastructure spending such as on HS2 and Hinkley Point could provide a measure of support.
| Name | Price (p) | Market cap (£m) | 12-month change (%) | Trailing PE | Forward PE | Dividend Yield (%) | Last IC View |
| Balfour Beatty | 271.5 | 1,872.64 | -6.73 | 13.4 | 12.3 | 1.47 | Buy, 257p 14 Dec 2018 |
| CRH | 2,169 | 17,665.55 | -18.49 | 13 | 11.5 | 2.84 | Buy, 2,795p 4 Jun 2018 |
| Ferguson | 5,223 | 12,109.85 | -13.04 | 12.7 | 12.1 | 2.7 | Hold, 6,213p 3 Oct 2018 |
| Grafton | 740 | 1,759.47 | -7.38 | 12 | 11.6 | 1.97 | Hold, 812.5p 22 Aug 2018 |
| Howden Joinery | 489.1 | 2,977.14 | 7.73 | 15.4 | 14.3 | 2.29 | Hold, 479.5p 26 Jul 2018 |
| Ibstock | 240.6 | 977.93 | -8.45 | 12.8 | 12.1 | 6.65 | Buy, 238p 23 Nov 2018 |
| John Laing | 339 | 1,663.73 | 27.18 | 5.7 | 7.9 | 1.57 | Buy, 315p 28 Aug 2018 |
| Marshalls | 503 | 1,006.15 | 18.35 | 20 | 18.5 | 2.94 | Buy, 448.6p 16 Aug 2018 |
| Melrose Industries | 162.35 | 7,887.38 | -30.91 | 13.9 | 11.5 | 2.68 | Buy, 220p 13 Sep 2018 |
| Polypipe | 375 | 749.17 | -8.8 | 13.3 | 12.1 | 2.99 | Buy, 373.8p 14 Aug 2018 |
| Travis Perkins | 1,233.5 | 3,110.2 | -18.37 | 11.8 | 11.4 | 3.73 | Hold, 1,188p 31 Jul 2018 |
