Stephen Rawlinson
17 May 2017 · 2 min read

Market Commentary - Housing, Infrastructure, Construction and Services 17th May 2017

Countryside’s half year numbers are all that attracts attention this morning in the HICS area as they provide a steer on the housing market, following Crest’s update yesterday. One company that should attract attention is having a Capital Markets Day later, Blue Prism. Its software and products are termed Robotic Process Automation (RPA); essentially the company’s products tackle the routine rules based administration work that abounds in FM and many other areas of HICS sector companies everyday workload.

Countryside’s half year numbers are all that attracts attention this morning in the HICS area as they provide a steer on the housing market, following Crest’s update yesterday. The numbers are a tad ahead of expectations and the company has flagged it expects to beat previous estimates for this year’s out-turn. The company is also raising mid-term guidance Completions rose 31% in the period to 1,437, revenue and operating profit were up by 39% and the ROCE was 26%. There are many statistics that show Countryside to be doing well now and having the potential to continue the trend. The order book in private sakes is up 69% the landbank in Partnership Homes is up 18% to 17,528 plots and in Private housebuilding the landbank is at 20,472 units, 12% higher than last year and 85% are converted from the strategic landbank. We do not cover the stock so will not go into further detail; for us the issue is that there seems to be no shortage of demand. The company has deliberately aimed at a lower price point to adjust to the current market; its ASP fell 13% to £441,000 in private sales, despite underlying inflation of 6% in 1H’17 so it is having to adjust a little but having said that it has seen no issues with demand and mortgage availability.

One company that should attract attention is having a Capital Markets Day later, Blue Prism. Its software and products are termed Robotic Process Automation (RPA); essentially the company’s products tackle the routine rules based administration work that abounds in FM and many other areas of HICS sector companies everyday workload. Such work is the bread and butter of what Capita does and we expect it is advanced with its preparations for use of new technology but RPA also has applications in the 1,000s of routine jobs and transactions carried out by the FM and other services companies, including the distributors. The creation of the Digital Back Office is happening, most companies are aware of it and making plans. It should start to become an important element in the way HICS stocks operate and has serious implications for the value added by BPO companies. If you do not know about this already then take a look. It is an area analysts should be asking about as it would be easy for a company to get left behind in the use of technology such as RPA which will affect its competitiveness.

The moves yesterday were mainly positive in a strong market. Polypipe closed at a record level of 420p having increased 2.4% yesterday and there are many reasons to expect it to sustain its current strength, given the news from the housebuilders and its own efforts. Kier was the weakest performer, down 1.0% to 1262p as it struggles to get traction at the moment. The stock has fallen steadily since it topped the 12 month high of 1500p in late March and it went XD at the end of that month. The news from the company has been positive so far with few concerns though forecasts have been stable in recent months with little encouragement to upgrade. We expect that it’s simply a valuation issue as EPS of 107p this year and a 1262p share price are not out of line with rivals. The Galliford Try warning a few weeks ago has created nervousness about all companies involved in Construction.

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