Bank Holiday over and the US market seemed to take Fake Armageddon in its stride. There is no new news today in the sector. Timely therefore for Balfour Beatty to issue another of its short thought pieces on UK infrastructure, the latest out this morning is on UK aviation facilities. The moves on Thursday last, the most recent trading session, had no real pattern.
Bank Holiday over and the US market seemed to take Fake Armageddon in its stride. There is no new news today in the sector. There is the usual speculation about housing and house prices which allied to news from recruiters (such as Hays Group which showed UK revenue down 10% in 1H’17) that job creation is slowing tells us that we are in a period of much slower growth but not recession. Most sector stocks have issued guidance that is cautious for this year and next so the slowing is well heralded. The point is that more dials are pointing in the “Slower” direction.
Timely therefore for Balfour Beatty to issue another of its short thought pieces on UK infrastructure, the latest out this morning is on UK aviation facilities. The main gist of what is being said is that the government needs rapidly to join a few dots on aviation infrastructure spending. If Post Brexit Britain is to be a success and “open to trade” then we need urgently to build new aviation capacity and not just a new runway at Heathrow but also new capacity at other UK hubs, such as Manchester in a holistic approach. We have long held a view that it’s not Gatwick or Heathrow for a new runway, it should be both and if Manchester does not get a new runway than the M6 will need ten lanes each way. Brexit in two years and a new runway at Heathrow in 15 just does not cut it, is the thought.
News later this week comes from Rentokil tomorrow with a trading update tomorrow and that’s it in terms of timetabled releases.
The moves on Thursday last, the most recent trading session, had no real pattern. Grafton was the best performer, up 2.8% as confidence returns and Euroland recovery is aiding stocks with EU exposure. We cannot say it was the merchants in general that got support as Travis Perkins, down 0.5% and SIG, down 0.4% were the back markers! Our sense is that the sector has gone a bit drifty lately in the absence of much news in the last 2-3 weeks which is to be expected post results and with a lot of noise over Brexit but not much action. The rise in sterling in the last week may take the shine from some FX exposed stocks this morning (Compass, Rentokil) but there is no strong shift in sterling just a drift to strengthening.
Moves last week
The sector was broadly flat at the end of the four trading sessions last week as was the market. For choice the housebuilders improved slightly, just over 1% but it was not substantial. The HICS sector remains well ahead of the market YTD. The main UK related market indices are up 3.5% YTD and the sector is up by 7% with the housebuilders leading the way, up by 13%.
High flying Balfour Beatty was the best riser last week, up by 7.5% to 290p, following favourable broker comment. We believe it will not be very long before the company is able to be much more confident about its outlook in normal trading. The PPP/PFI portfolio is also now more valuable than it was six months ago, in market terms, as the share price of InfraCo rivals have strengthened. We regarded 300p as the level were targets might be pitched at the turn of the year when it was 270p; the absence of adverse news and the progress shown at the results suggests that 350p might be a realistic target as long as earnings continue to trend to 30p a share by 2019. Given the timing of the rewards packages and that we are now over two years in to the renewal project we expect to see some substantial developments next year.
Mears was the largest faller down just 2.5% to 503p. Given the low volume of trade in the shares it is always wise to look sceptically at short term moves as indications of longer term trends in this stock. It has been trading in a higher range since mid-January 2017, 500p to 540p and there are few reasons in terms of the underlying operations why that should change in the coming months. It is a well-run company doing fine in good markets having resolved some structural issues during 2016; strategically it has been well ahead of rivals at spotting the trends in its market and acting accordingly and proportionately.
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