Sector spotlight: construction

Are there any opportunities lurking in the construction sector?

Article updated: 24 July 2020 1:00pm Author: Michael Baxter

If you look at the profit and loss relating to companies in the construction and materials sector, you will find two-thirds of companies have seen profits grow over the last five years.

In fact, I am looking at 28 companies for this piece, a number I derived by taking all companies listed as falling into this sector by The Share Centre and excluding companies valued at less than £50 million. One company scraped into the list, with a valuation of exactly £50 million, meaning that by the time you read this, if its share price has fallen, it will have fallen out of my criteria for inclusion.

But you have to draw the line somewhere. I am not saying that companies worth less than £50 million are not necessarily worth investing in. Still, such companies are usually seen as high risk and maybe are only for investors with good knowledge of the company or a very particular reason to invest in it.

In fact, of the 28 companies, 20 have seen profits grow over the last five years.

Investment Profits growth over 5 years; only showing companies which have seen profits increase. 
Balfour Beatty From loss-making to £138m profit
Barratt Developments 33%
Boot (Henry) 53%
Breedon Group 206%
CRH 31%
Eleco 250%
Forterra 57%
Grafton Group 52%
MJ Gleeson 46%
James Halstead 4%
Kingspan 45%
Keller -53%
Michelmersh Brick 117%
Morgan Sindall 102%
Marshalls 100%
Norcros 0%
Persimmon 54%
Renew 54%
Sigmaroc From loss-making to profit
Steppe Cement From loss-making to profit
Taylor Wimpey From loss-making to profit

In many cases, however, share prices peaked some time ago.

The 2008 crisis hit the sector, while the rise of online shopping has deepened its troubles.
But the Covid-19 crisis is likely to leave a much bigger mark than the 2008 crash.

Remote working is here to stay, sure post-Covid, many workers will return to offices, but I would be astonished if we ever see a return to what it used to be like. More meetings will be conducted remotely, too — forever.

Linked with that, the Covid crisis is seeing an acceleration towards online shopping.

The combination of the rise in remote working and acceleration in the adoption of online shopping will have a devastating effect on high streets. City centres may well suffer a hollowing out effect, as we see a reversal of a trend that has been centuries in the making — the rural to urban transformation may come to an end.

These developments will hit commercial property hard — very hard.
As for retail property (the housing market), this is a difficult one to call, especially in the UK, where the demand often seems to defy common sense.

Property prices in city centres should be adversely affected. In theory, remote working may lead to increased demand for property away from cities.

But, the post-Covid period will also witness extremely high unemployment for some time. In such circumstances, it is hard to see the housing market flourish, and I suspect all home builders will suffer a knock as a result, although builders that focus on more rural areas may not do so badly.

In the longer term, the decline in demand for physical retail and office space should free up space for residential property. The UK property market may not be characterised by lack of land to build on for much longer. This change in the availability of space for building on may harm house prices, but support house builders.

That leaves infrastructure. A few months ago, with the government seemingly hell-bent on stimulating the economy by boosting infrastructure, I would have said the conditions were right for construction companies focusing on this area.

The rise of remote working may adversely affect the need for enhanced physical infrastructure, but I suspect that the government is too wedded to the idea to change track. I still think this will be a good decade for infrastructure.

Dividends

It is worth noting that many companies in this sector are good dividend payers. But will such elevated dividends be practical post-Covid? We may get a partial answer to this question by looking at balance sheets. Here is a list of high dividend payers in the construction and materials sector, alongside the ratio of their assets to liabilities.

Investment Yield greater than 3% Total Assets & liabilities £m
Barratt Developments 5.37% 3.10
Costain 5.78% 1.40
Galliford Try 56.38% 1.37
MJ Gleeson 5.06% 3.65
Kier 6.62% 1.24
McCarthy & Stone euros 5.47% 6.34
Persimmon 8.94% 3.65
Taylor Wimpey 2.71% 2.67

Value

Finally, it might also be worth contrasting net asset values with market caps. Here is list all companies in the sector which have higher net asset values than market capitalisation — perhaps suggesting the companies in question are undervalued. But to draw a conclusion look at other data too.

  • Abbey
  • Boot (Henry)
  • Kier
  • McCarthy & Stone euros
  • Steppe Cement

The Share Centre has buy or hold recommendations on some construction and materials companies including as follows:

Buy

  • Breedon Group
  • CRH
  • Morgan Sindall

Hold

  • Barratt Developments
  • Taylor Wimpey
  • Persimmon

And so, here is each company.

Abbey

Listed since: 1995

Abbey is an AIM-listed property developer focusing on the UK, the Republic of Ireland and the Czech Republic. Back in March if cancelled its dividend and last December announced a fall in interim profits.

Share price 1,180p
2020 high 1,350p
2020 low 1,120p
Five year high 1,380p
All time high 1,380p
Change last 12 months -7.45%
Change last 5 years 16.60%
Change all time 713.79%
Market cap £m 247
Yield 1.47
P/E 10.7
Revenue growth since 2015 -18%
Pre-tax profits growth -46.77%
Total assets/total liabilities £m 9
Total assets/total liabilities £m 8
Total current assets/current liabilities £m 8
Net assets £m 378

Balfour Beatty

Listed since: 1995

Balfour Beatty is the second biggest construction company in the UK and the fifteenth biggest in the world and was responsible for building the largest proportion of the M25 motorway. Focuses on international rail, road, utility systems and buildings markets.

Share price 262p
2020 high 293p
2020 low 189p
Five year high 310p
All time high 416p
Change last 12 months 15%
Change last 5 years 14%
Change all time -5%
Market cap £m 1,813
Yield 0.8
P/E 13.8
Revenue growth since 2015 5%
Pre-tax profits growth From loss-making to £138m profit
Total assets/total liabilities £m 1.4
Total current assets/total liabilities £m 0.6
Total current assets/current liabilities £m 0.9%
Net assets £m 1,377

Barratt Developments

Listed since: 1988

Barratt Developments develops residential and non-residential properties mainly in the United Kingdom under the brands, Barratt Homes, David Wilson Homes and Ward Homes.

Share price 541p
2020 high 878p
2020 low 364p
Five year high 878p
All time high 878p
Change last 12 months -16%
Change last 5 years -12%
Change all time 366%
Market cap £m 5,515
Yield 5.37
P/E 7.4
Revenue growth since 2015 12%
Pre-tax profits growth 33%
Total assets/total liabilities £m 3.1
Total current assets/total liabilities £m 2.6
Total current assets/current liabilities £m 3.6
Net assets £m 4,869

Boot (Henry)

Listed since: 1993

Boot (Henry) is a UK-focused commercial development and land promotion company. It holds a land bank and targets both private and public sector clients by buying or selling investment properties and providing constructors with plant equipment. It also refurbishes and constructs buildings. It focuses on the North East and Midlands.

Share price 236p
2020 high 342p
2020 low 185p
Five year high 342p
All time high 342p
Change last 12 months -6%
Change last 5 years -1%
Change all time 329%
Market cap £m 308
Yield 2.16
P/E 8.16
Revenue growth since 2015 116%
Pre-tax profits growth 53%
Total assets/total liabilities £m 3.3
Total current assets/total liabilities £m 2.4
Total current assets/current liabilities £m 3.1
Net assets £m 318

Breedon Group

Listed since: 2010

Breedon Group operates around 60 quarries, 26 asphalt plants, 200 ready-mixed concrete plants, 2 cement import terminals and three concrete block plants.

Share price 79p
2020 high 99p
2020 low 63p
Five year high 99p
All time high 99p
Change last 12 months 29%
Change last 5 years 51%
Change all time 554%
Market cap £m 1,326
Yield 0
P/E 16.94
Revenue growth since 2015 192%
Pre-tax profits growth 206%
Total assets/total liabilities £m 2.4
Total current assets/total liabilities £m 0.4
Total current assets/current liabilities £m 1.1
Net assets £m 839

Constain

Listed since: 1988

Constain builds smart infrastructure solutions.

Share price 62p
2020 high 195p
2020 low 34p
Five year high 458p
All time high 150,000p
Change last 12 months -61%
Change last 5 years -80%
Change all time -100%
Market cap £m 170
Yield 5.78
P/E -24
Revenue growth since 2015 -27%
Pre-tax profits growth -121%
Total assets/total liabilities £m 1.4
Total current assets/total liabilities £m 1.1
Total current assets/current liabilities £m 1.3
Net assets £m 158

CRH

CRH manufactures and supplies of a wide range of materials across Europe and America, for the construction industry, including cement, concrete, aggregates, asphalt/bitumen and bricks. There are also joint ventures in Asia.

Share price 3,054p
2020 high 3,099p
2020 low 1,574p
Five year high 3,100p
All time high 3,157p
Change last 12 months 14%
Change last 5 years 62%
Change all time 554%
Market cap £m 23,887
Yield 2.38
P/E 14.79
Revenue growth since 2015 1%
Pre-tax profits growth 31%
Total assets/total liabilities £m 1.9
Total current assets/total liabilities £m 0.5
Total current assets/current liabilities £m 1.6
Net assets £m 17,480

Elecosoft

Listed since: 1995

Elecosoft is a software and services provider.

Share price 84p
2020 high 92p
2020 low 47p
Five year high 92p
All time high 107p
Change last 12 months 6%
Change last 5 years 248%
Change all time 191%
Market cap £m 69
Yield 0.36
P/E 25.3
Revenue growth since 2015 67%
Pre-tax profits growth 250%
Total assets/total liabilities £m 1.9
Total current assets/total liabilities £m 0.6
Total current assets/current liabilities £m 1.0
Net assets £m 18

Forterra

Forterra is a UK supplier of Heavy Building Materials for the Construction Industry.

Share price 175p
2020 high 371p
2020 low 165p
Five year high 371p
All time high 371p
Change last 12 months -37%
Change last 5 years -1%
Change all time -1%
Market cap £m 402
Yield 2.28
P/E 7.36
Revenue growth since 2015 29%
Pre-tax profits growth 57%
Total assets/total liabilities £m 1.9
Total current assets/total liabilities £m 0.7
Total current assets/current liabilities £m 1.3
Net assets £m 156

Galliford Try

Listed since: 1988


Galliford Try provides essential buildings and infrastructure across the country, it has public and private sector clients and has regional housebuilding businesses that specialise in individually designed developments across the South of England and the Eastern Counties.

Share price 102p
2020 high 886p
2020 low 102p
Five year high 7,810p
All time high 1,867p
Change last 12 months -84%
Change last 5 years -94%
Change all time -86%
Market cap £m 114
Yield 56.38
P/E 56
Revenue growth since 2015 9%
Pre-tax profits growth -22%
Total assets/total liabilities £m 1.4
Total current assets/total liabilities £m 1.1
Total current assets/current liabilities £m 1.2
Net assets £m 751

MJ Gleeson

Listed since: 1993

MJ Gleeson specialises in low-cost house building and strategic land promotion.

Share price 690p
2020 high 990p
2020 low 534p
Five year high 990p
All time high 990p
Change last 12 months -14%
Change last 5 years 53%
Change all time 360%
Market cap £m 396
Yield 5.06
P/E 11.19
Revenue growth since 2015 76%
Pre-tax profits growth 46%
Total assets/total liabilities £m 3.6
Total current assets/total liabilities £m 3.4
Total current assets/current liabilities £m 3.8
Net assets £m 203

Grafton Group

First Listing: 1999

Grafton Group have national and regional positions in the Merchanting, Retailing and Mortar manufacturing markets.

Share price 682p
2020 high 985p
2020 low 371p
Five year high 985p
All time high 985p
Change last 12 months -10%
Change last 5 years -4%
Change all time 34,000%
Market cap £m 1,634
Yield 0.95
P/E 13.62
Revenue growth since 2015 7%
Pre-tax profits growth 52%
Total assets/total liabilities £m 1.9
Total current assets/total liabilities £m 0.7
Total current assets/current liabilities £m 1.8
Net assets £m 1,362

Ibstock

Listed since: 2015

Ibstock is a brickmaker, and supplier of bricks.

Share price 171p
2020 high 322p
2020 low 148p
Five year high 322p
All time high 322p
Change last 12 months -28%
Change last 5 years -14%
Change all time -14%
Market cap £m 703
Yield 1.86
P/E 10.6
Revenue growth since 2015 14%
Pre-tax profits growth -5%
Total assets/total liabilities £m 2.5
Total current assets/total liabilities £m 0.5
Total current assets/current liabilities £m 1.6
Net assets £m 464

James Halstead

James Halstead plc is a major international group of companies that manufacture commercial, contract and consumer flooring.

Share price 528p
2020 high 570p
2020 low 365p
Five year high 570p
All time high 570p
Change last 12 months 2%
Change last 5 years 27%
Change all time 2012%
Market cap £m 1,184
Yield 2.65
P/E 29
Revenue growth since 2015 12%
Pre-tax profits growth 4%
Total assets/total liabilities £m 2.6
Total current assets/total liabilities £m 2.1
Total current assets/current liabilities £m 2.8
Net assets £m 133

Kingspan

Listed since: 1996

Kingspan offer high-performance insulation and building envelope solutions.

Share price 63p
2020 high 64p
2020 low 39p
Five year high 64p
All time high 64p
Change last 12 months 34%
Change last 5 years 185%
Change all time 4,032%
Market cap £m 11,438
Yield 0.21
P/E 31
Revenue growth since 2015 50%
Pre-tax profits growth 45%
Total assets/total liabilities £m 2.0
Total current assets/total liabilities £m 0.7
Total current assets/current liabilities £m 1.7
Net assets £m 2,120

Kier

Listed since: 1996

Kier is a UK building and civil engineering contractor also specialising in private house building, facilities management, property development and the PFI.

Share price 74p
2020 high 149p
2020 low 68p
Five year high 1,485p
All time high 2,438p
Change last 12 months -9%
Change last 5 years -95%
Change all time -60%
Market cap £m 120
Yield 6.62
P/E -0.47
Revenue growth since 2015 3%
Pre-tax profits growth Losses widened
Total assets/total liabilities £m 1.2
Total current assets/total liabilities £m 0.7
Total current assets/current liabilities £m 2.3
Net assets £m 519

Keller

Keller is a ground engineering specialist. It prepares the ground for projects and provides solutions to ground engineering problems. The company has a global presence in Europe, North America and Australia. 

Share price 614p
2020 high 876p
2020 low 445p
Five year high 1,082p
All time high 1,280p
Change last 12 months 4%
Change last 5 years -42%
Change all time 380%
Market cap £m 443
Yield 5.47
P/E 20.67
Revenue growth since 2015 11%
Pre-tax profits growth -53%
Total assets/total liabilities £m 1.4
Total current assets/total liabilities £m 0.8
Total current assets/current liabilities £m 1.4
Net assets £m 397

Michelmersh Brick 

Listed since: 2004

Michelmersh Brick manufactures and sells handmade and machine-made clay facing bricks and roof tiles. 

Share price 100p
2020 high 130p
2020 low 84p
Five year high 130p
All time high 128p
Change last 12 months 11%
Change last 5 years 7%
Change all time 61%
Market cap £m 94
Yield 1.15
P/E 10.65
Revenue growth since 2015 86%
Pre-tax profits growth 117%
Total assets/total liabilities £m 2.7
Total current assets/total liabilities £m 0.7
Total current assets/current liabilities £m 2.0
Net assets £m 76

McCarthy & Stone 

Listed since: 2015

Developer and manager of independent living and retirement communities McCarthy & Stone.

Share price 73p
2020 high 158p
2020 low 40p
Five year high 277p
All time high 277p
Change last 12 months -48%
Change last 5 years -65%
Change all time -65%
Market cap £m 393
Yield 2.6
P/E 8.49
Revenue growth since 2015 10%
Pre-tax profits growth -53%
Total assets/total liabilities £m 6.3
Total current assets/total liabilities £m 5.4
Total current assets/current liabilities £m 5.9
Net assets £m 769

 

Marshalls 

Listed since: 1988

Marshalls makes and supplies concrete, clay, natural stone, garden and patio products for the home improvement and home building markets. 

Share price 625p
2020 high 876p
2020 low 519p
Five year high 868p
All time high 868p
Change last 12 months -2%
Change last 5 years 95%
Change all time 1057%
Market cap £m 1,251
Yield 0.75
P/E 21.3
Revenue growth since 2015 40%
Pre-tax profits growth 100%
Total assets/total liabilities £m 2.1
Total current assets/total liabilities £m 0.8
Total current assets/current liabilities £m 1.3
Net assets £m 295

Morgan Sindall

First listing: 1988

Morgan and Sindall is a construction group with nine subsidiary companies operating in affordable housing, construction, fit-out and infrastructure services.

Share price 1,148p
2020 high 1,970p
2020 low 1,060p
Five year high 1,970p
All time high 1,970p
Change last 12 months 2%
Change last 5 years 42%
Change all time 571%
Market cap £m 528
Yield 1.83
P/E 7.27
Revenue growth since 2015 20%
Pre-tax profits growth 102%
Total assets/total liabilities £m 1.4
Total current assets/total liabilities £m 1.0
Total current assets/current liabilities £m 1.1
Net assets £m 396

Norcros

Listed since: 2007

Norcros is a Supplier of high quality and innovative bathroom and kitchen products. 

Share price 155p
2020 high 305p
2020 low 120p
Five year high 305p
All time high 703p
Change last 12 months -27%
Change last 5 years -9%
Change all time -78%
Market cap £m 125
Yield 2
P/E 11.4
Revenue growth since 2015 45%
Pre-tax profits growth 0%
Total assets/total liabilities £m 1.4
Total current assets/total liabilities £m 0.8
Total current assets/current liabilities £m 2.4
Net assets £m 104

Polypipe Group

Listed since: 201

As the name suggests, Polypipe is a manufacturer of plastic piping systems, for use in the residential, commercial and civil infrastructure sectors. 

Share price 437p
2020 high 619p
2020 low 395p
Five year high 616p
All time high 619p
Change last 12 months 5%
Change last 5 years 57%
Change all time 68%
Market cap £m 996
Yield 0.92
P/E 17.55
Revenue growth since 2015 16%
Pre-tax profits growth -11%
Total assets/total liabilities £m 2.1
Total current assets/total liabilities £M 0.4
Total current assets/current liabilities £m 1.4
Net assets £m 361

Persimmon

Listed since: 1988

Persimmon's is a well known housebuilder.

Share price 2,629p
2020 high 3,261p
2020 low 1,546p
Five year high 3,261p
All time high 3,261p
Change last 12 months 30%
Change last 5 years 35%
Change all time 152%
Market cap £m 8,385
Yield 8.94
P/E 9.85
Revenue growth since 2015 26%
Pre-tax profits growth 54
Total assets/total liabilities £m 3.6
Total current assets/total liabilities £m 3.3
Total current assets/current liabilities £m 4.1
Net assets £m 3,258

Renew

Listed since: 1999

Renew provide essential engineering services to maintain and renew critical infrastructure networks.

Share price 442p
2020 high 568p
2020 low 335p
Five year high 568p
All time high 568p
Change last 12 months 12%
Change last 5 years 34%
Change all time 152%
Market cap £m 347
Yield 2.6
P/E 14.93
Revenue growth since 2015 15%
Pre-tax profits growth 54
Total assets/total liabilities £m 1.5
Total current assets/total liabilities £m 0.7
Total current assets/current liabilities £m 0.8
Net assets £m 92

Sigmaroc 

Listed since: 2016

Sigmaroc is AIM-quoted company that invests improves and integrates companies within the construction materials space in Europe.

Share price 43p
2020 high 52p
2020 low 23p
Five year high 52p
All time high 52p
Change last 12 months 63%
Change last 5 years 450%
Change all time 450%
Market cap £m 109
Yield 0
P/E 47
Revenue growth since 2015 99900%
Pre-tax profits growth from loss-making to profit
Total assets/total liabilities £m 2.0
Total current assets/total liabilities £m 0.4
Total current assets/current liabilities £m 1.0
Net assets 102

Steppe Cement

Listed since: 2005

Construction materials producer in Kazakhstan. Steppe Cement's cement production facilities consist of two dry kilns, and four mothballed wet kilns. It is the leading cement manufacturer in Kazakhstan using the dry method which utilises fewer resources.

Share price 23p
2020 high 37p
2020 low 19p
Five year high 41p
All time high 375p
Change last 12 months -18%
Change last 5 years 10%
Change all time 152%
Market cap £m 50
Yield 13
P/E 6.85
Revenue growth since 2015 -15%
Pre-tax profits growth from loss-making to profit
Total assets/total liabilities £m 3.0
Total current assets/total liabilities £m 1.0
Total current assets/current liabilities £m 1.8
Net assets £m 63

Taylor Wimpey

Listed since:1988

Taylor Wimpey is a well known housebuilder with developments across the UK.

Share price 142p
2020 high 236p
2020 low 101p
Five year high 236p
All time high 704p
Change last 12 months -13%
Change last 5 years -23%
Change all time 152%
Market cap £m 5,164
Yield 2.71%
P/E 6.88%
Revenue growth since 2015 38%
Pre-tax profits growth From loss-making to profit
Total  assets/total liabilities £m 2.8
Total current assets/total liabilities £m 2.7
Total current assets/current liabilities £m 4.4
Net assets £m 3,307

These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

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Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.

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