UK Building is All Systems Go! Stocks to play the theme

6th February 2014

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Highest Construction Confidence in 10 years

If ever anyone needed confirmation that the UK building industry is enjoying the best of times, you only need cast your eyes over the following chart from the survey firm Markit, that was released this week writes Edmund Shing.

1. UK Construction Confidence Reaches New Highs

Unsurprisingly, residential construction is leading the way, given the buoyant state of house prices nationwide, but most of all in London. You only have to look around London to see the amount of regeneration that is going on, even after the 2012 Olympic Games, for instance in the North and the East End of London.

 2. NORTH AND EAST OF LONDON SEEING REGENERATION

 The long and short of it is that this confirms the strong momentum being reported by UK house builders and building materials companies. I have previously extolled the virtues of this sector, and would like to take this opportunity to do it again.

House builders that should benefit from this ongoing boom:
Barratt Developments (BDEV), Galliford Try (GFRD), Persimmon (PSN) and Telford Homes (TEF).

On the Building Materials side, have a look at: Headlam Group (HEAD), James Latham (LTHM) and Low & Bonar (LWB).

Finally, you have Building Services: T. Clarke (CTO), Kier Group (KIE) and Carillion (CLLN).

In general, these companies remain good value on metrics such as P/E, price/book and dividend yield, have maintained strong price momentum trends and are seeing growing profitability on the back of a strong underlying market.

But what about a London housing bubble?

While there are many commentaries pointing to a growing housing bubble in London (with which I cannot in all honesty disagree), it is difficult to ignore the fact that employment is growing faster than many had predicted, and this is only boosting the demand for housing in areas like London and the South East, which supply is not keeping up with at all. So while I would expect the rate of house price growth to slow going forwards, this should be in part due to increasing supply of new homes, which is good news for all the companies listed above.

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