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Stephen Rawlinson
19 June 2017 · 1 min read

Market Commentary - Housing, Infrastructure, Construction and Services 19th June 2017

There is no substantive formal news on the day the negotiations to exit the EU begin. News expected this week includes interims from Wolseley tomorrow and finals from London housebuilder Berkeley Group on Wednesday. Friday saw some positive moves across all HICS stocks; among our 22 stocks only four declined, with the worst case, SIG, being 0.4% down.

There is no substantive formal news on the day the negotiations to exit the EU begin.

News expected this week includes interims from Wolseley tomorrow and finals from London housebuilder Berkeley Group on Wednesday. The latter are likely to be very interesting as Tony Pidgely is usually quite straightforward in his views on progress in the sector. Recent moves by Berkeley and London rival Crest Nicholson into the Birmingham market will be well read as this may be a signal that opportunities for their product are more restricted in the M25 area these days. 

Friday saw some positive moves across all HICS stocks; among our 22 stocks only four declined, with the worst case, SIG, being 0.4% down. Other than the positive treatment for the sector there was no real noticeable trend. Homeserve was the best riser, up 5% and closing at 786p is at a record level; with EPS forecast at around 30p for 17/18 management has a lot to do to sustain share price momentum, in our view. If interest rates really are on the up then valuations are full for stocks with UK earnings but, at present, the mood is that even if rates rise a little, it will not affect progress. Grafton also rose 2.1% the second best riser as it consolidates at around 750p.

Moves Last Week

The prospect of a rise in interest rates had little impact last week. The sector was down slightly, less than the market which fell 0.7%. The housebuilders remain up 17% YTD, versus the market 5.3% higher. M&A activity has helped the Services stocks rise 11% YTD as well as continued FX tailwinds. The Construction and Building stocks are up 4% YTD, slightly less than the market.

The best performer last week was Capita following its reassuring update, it was up 20%. That level may not be sustained in the short term but longer term the earnings point to further gains being possible. The need for more equity seems to be fading. But the technology advances in back office processing are something with which the new CEO will need to get to solve. That is the key issue, in our view. Mitie, up 17.3% over the week’s trading might also see some retracement though longer term picture is positive and, in our view it has more opportunities than threats, the reverse of Capita’s position.

G4S saw the largest loss over the week, down just 4.9% and still up 37% YTD. The move was just ebb and flow of trade, in our view. The Merchants all slipped backwards last week, in 2-3%, which may be indicative of some nerves about possible interest rate rises.  But as previously shown there were some gains on Friday in the sub-sector.

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