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Stephen Rawlinson
9 June 2017 · 2 min read

Market Commentary - Housing, Infrastructure, Construction and Services 9th June 2017

What do we make of that? There is no company news today as you may have expected. In the absence of news we mention below two fundamental changes taking place in the sector, Partnership Housing and Modern Methods of Construction on which we have done much work recently. Get in touch if you want to hear more. The recent positive news from quoted entities about prospects in Partnership Housing begs the question of who might pay to have the properties built and how. The Modular/MMC (Modern Methods of Construction) market looks right and the news that Berkeley is looking at a site for a 2,000 unit pa modular factory at Northfleet is a big move.

What do we make of that? There is no company news today as you may have expected. The election outcome will of course delay projects and raise uncertainty. Not ideal for the large scale projects and long term contracts on which sector stocks depends. In the absence of news we mention below two fundamental changes taking place in the sector, Partnership Housing and Modern Methods of Construction on which we have done much work recently. Get in touch if you want to hear more.

Before we do that thank you very much to the many readers who have given to the Royal Marsden Cancer Fund via https://www.justgiving.com/fundraising/CoombeWoodGolfCharity and I am looking forward to seeing many of you next Friday at the Golf Day at Coombe Wood. If you have not sent a few bob yet please see if you can.

The recent positive news from quoted entities about prospects in Partnership Housing begs the question of who might pay to have the properties built and how. The Housing Associations themselves can do some of that from resources and HCA grants of course but borrowing is clearly the main source of funds. There seems to be no shortage of support. Scottish Housing Association Wheatley has just done a deal to get £100m from Blackrock for new developments (adding to the £300m bond raised in late 2014)  and 13 Housing Associations are expected soon to create a £750m bond to fund expansion. Pennaf, the third largest Housing Association in Wales has just completed a £250m bond raising. PRS Reit raised £250m recently to build new stock. Civitas is buying up existing stock with its £350m of new equity but of course that is releasing cash to owners to build new stock. The claims of Kier, Morgan Sindall and others that they see a very positive picture have a strong basis.

The Modular/MMC (Modern Methods of Construction) market looks right and the news that Berkeley is looking at a site for a 2,000 unit pa modular factory at Northfleet is a big move. There are many factors aligning that say MMC is going to be different this time. The grey beards remain sceptical. Of course but government support, changing patterns of buying and renting, existing extensive use of components and sub-assemblies and skills gaps point to more MMC and modular. The UK may have capacity for 30,000 off-site dwellings a year by end 2017 with more investment in the pipeline. That has substantial implications for materials, supply chains and many other aspects of the way we build dwellings. The expansion of Partnership Housing reinforces the increased use of MMC. The topic is quite complex but the trend is very clear.

The moves yesterday were in the same narrow band as recent days. Berendsen predictably headed the risers with an 11.2% increase as the proposed offer from Elis hit 1261p. That is likely to be recommended, so farewell Berendsen and Atkins quite soon. The next highest riser was Morgan Sindall following its CMD on Tuesday; it rose 2.8% to hit 1285p with 101,278 shares traded. The message is getting through for MGNS and we expect targets to be 1800p by the year end. SIG was the largest loser, down 1.3% to 147.8p but of course it went XD yesterday with 1.8p of final dividend so a 2.6p decline has some mitigation. There is no obvious catalyst for the current “deadlock” to alter. Over the coming months it seems likely that the word “uncertainty” will feature more in company statements than it has in the last 12 months and that is unhelpful for bulls but not necessarily strong enough for bears.

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