Investors in construction stocks reap benefits

THE construction industry continues to beat expectations and good times are in store for investors in stocks, stockbroker Davy said yesterday.

The firm’s latest report on the construction sector showed three Irish stocks were among the top five in Europe for gains so far this year.

Building materials groups Heiton and Grafton showed the way, with share price gains of 66% and 40% since January.

Much of Heiton’s gain was accounted for by the takeover approach it received from Grafton during the summer, which is expected to be approved by shareholders before Christmas. Heiton is best known for its Heiton Buckley builders’ merchants and Atlantic Homecare DIY chains, while Grafton owns Woodie’s DIY shops and the Chadwicks chain of builders’ providers.

Cavan-based insulation and raised floor business Kingspan also featured at the top of the European table with a 37% share price rise in the year to date. Davy analyst Joe Burnell said construction shares across the continent had done well, with gains averaging 12.4% for the year to date and 4.7% in the past month alone. But stocks across the sector were still valued at the low end of where they should be, leaving scope for “significant” share price gains over the next year, said Mr Burnell.

Irish construction companies were benefiting from “more buoyant” conditions, with total building output growing 11% year-on-year, according to Davy. Non-residential building, which includes office blocks and industrial developments, would see a pick-up in the current year that would help offset a decline in the number of new houses being built. Davy expected hew house building to slip next year from this year’s record levels of 80,000.

The firm singled out building materials giant CRH as well as Kingspan as potential growth stocks. CRH was valued in line with similar companies, said Mr Burnell, but deserved a higher rating because of its improved potential to grow sales. “As a growth stock, CRH clearly merits an above-average rating,” he said.

Kingspan also deserved attention because of its exposure to central and eastern Europe, where improving economic conditions and recent accession to the EU would spur construction. Mr Burnell said Kingspan could generate annual sales of over €150 million from the area within four years. The region contributed only 6% of Kingspan’s total sales but could be expected to deliver up to 15%. Kingspan has interests in Poland, Hungary and the Czech Republic and is to add to its manufacturing base in Poland.