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Stealth rally in construction stocks suggests economy is on a firm footing
While there is much handwringing over the outlook for the new-build housing sector, it seems the rest of the UK construction industry is in rude health. That has helped construction to be one of the best performing sectors in the FTSE 350 index year-to-date, up 20%.
The latest S&P Global/CIPS UK Construction PMI survey – which tracks changes in the total volume of construction activity in the UK by taking responses from 150 firms – posted a third consecutive monthly rise in output in April.
Although the housing sector recorded the fastest fall in activity since May 2020, this was more than offset by rising volumes of commercial and civil engineering work.
At the same time, supply conditions improved to the greatest extent since September 2009 due to better availability of materials, fewer transport delays and an easing of price pressures.
Commercial building was the fastest-growing area of the construction sector in April, with improving economic conditions helping to boost clients’ willingness to spend.
Civil engineering activity also picked up in April, supported by resilient pipelines of work on infrastructure projects.
Encouragingly, new orders increased for the third consecutive month in April and are growing faster than they were on average in the second half of 2022 due to ‘resilient client demand’ especially for commercial building.
‘The growth in the construction of commercial properties is welcome news, with the avoidance of a recession in the last quarter leading to clients being more willing to spend,’ commented John Glen, chief economist at the Chartered Institute of Procurement & Supply.
Leading the charge on the stock market has been construction and urban regeneration firm Morgan Sindall (MGNS) with a total return of 26% and FTSE 100 global building materials group CRH (CRH), returning 24%.
In its April update, CRH said it had seen ‘a positive start to the year in a seasonally quiet trading period’ driven by good activity levels in
the Northeast US in its essential materials, road solutions and infrastructure divisions.
Meanwhile, Morgan Sindall reported healthy demand in UK construction and infrastructure and strong trading in its fit-out business with its order book and new enquiries providing ‘confidence for the rest of the year’.
Other notable performers this year include Genuit (GEN), formerly known as Polypipe, and infrastructure firm Balfour Beatty (BBY), which added two major road projects to its order book in the first quarter along with a contract to build US data centres.
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