Brokers forecast construction growth

STRONG growth in the Irish construction sector is forecast again for 2006 in a new review by a top stockbroking firm.

Elsewhere, The Economist magazine has raised serious concerns about the US housing market which has doubled in value since 1995.

The British magazine has been warning of property bubbles for some time.

In a recent report the Economic and Social Research Institute warned Irish property could collapse in value by over 30%.

That could happen as early as 2007 it warned in its Mid Term Review, published before Christmas.

In its review of the US market, The Economist has accused outgoing Federal Reserve chairman Alan Greenspan of fanning the flames of the house price bubble by slashing interest rates to 1% from over 6% between 2001 and last year.

The low interest rate regime has led to massive borrowing and the US living way beyond its means.

If investors turn against the US then the results could be calamitous for the global economy, warns The Economist.

Meanwhile 2006 still looks like a rock solid year for Irish building firms.

Davy Stockbrokers point out that CRH, Kingspan and Grafton last year spent over €2 billion expanding their interests across Europe and the US.

With the British property market recovering and the US showing no signs of slowing, the brokers are forecasting very good value increases in the various Irish construction stocks.

When it comes to the state of US property the brokers ask "slowdown, what slowdown?" pointing out US housing starts rose sharply in November.

By then the number of housing starts were running at an annualised rate of 2.123 million which was 5.3% better than the revised October 2005 figure.

The brokers said: "A US housing market of over two million new homes per annum is good news for CRH, among others."

CRH earns one-third of all its profit in the US, of which half is generated by its involvement in the housing market.

The analysis concludes that the heavy investment of recent years by Irish firms in the sector has primed the market and investors are in for a good year in 2006.

Overall, Irish construction stocks rose an average of 31% in 2004 and 37% in 2005 as the sector continues to do well.

Grafton should be a beneficiary of the SSIAs as the home improvement splurge gets underway while CRH and Kingspan will also do well out of the SSIA spend on DIY.

Grafton's rating is still modest while the brokers are very positive on CRH.

Kingspan's share price shot ahead 51% last year based on projected earnings growth of 38% for 2005.

It won't repeat that performance, but should reward investors well nevertheless, said the brokers.