Building groups see signs of optimism return to the sector

Insulation giant SIG and landscape products group Marshalls both said they have traded in line with expectations in the first four months of the year, nudging their shares up.

SIG, which trades from 12 countries across Europe, told shareholders at its annual meeting that sales since the start of January have increased by eight per cent on a year earlier, or nine per cent on a constant currency basis.

But Sheffield-based SIG said the sales performance was measured against a badly weather-affected period a year ago, when heavy snowfall blanketed much of the UK. Since March, SIG said growth has moderated against tougher comparators.

Huddersfield-based Marshalls, which sells products ranging from natural paving to bollards and benches, told shareholders at its annual meeting sales in the first four months of the year increased by 10 per cent on a year earlier to £113m.

The group said sales to the public sector and commercial market, which make up about 60 per cent of its revenues, increased by 12 per cent. Sales to the domestic market surged seven per cent.

But Marshalls, which is supplying the London 2012 Olympic Games, warned the market’s recovery has some way to go.

“Sales in the first four months of 2011 have continued the positive trend of 2010, however, market uncertainty remains,” said the group.

The outlook for the public and commercial sector remains “mildly positive”, and the domestic sector’s prospects are “resilient”.

Marshalls’ chief executive Graham Holden said the group is unlikely to maintain the sales growth seen in recent months. He said last year’s poor weather made up about two per cent of sales hike, with higher prices contributing about four per cent.

Marshalls’ survey of domestic installers’ order books showed 7.1 weeks of work, similar to the 7.2 weeks at the end of February. But this was down on the 8.4 weeks seen a year ago.

Mr Holden said he sees the “mildly positive” public sector and commercial trend continuing for the rest of the year, although expects public sector spending cuts to bite.

“We’re happy with where things are (in the domestic sector),” he said. “The one nervousness is around consumer confidence, with take-home pay affected by tax changes.”

After a strong rebound in its shares over the past few months, also SIG warned its sales growth over the rest of the year is expected to moderate due to tougher comparators and the effect of public sector spending cuts.

SIG’s chief executive Chris Davies said: “We’ve not seen evidence so far of any noticeable decline in (public sector) activity or the work that our customers are doing on schools and hospitals but we expect it’s only a matter of time before it starts.

“The big hope for all of us in the construction sector is that the recovery in the private commercial sector will be sufficiently strong and the timing of it suitably fortunate to offset some of the decline that will be coming through.”

New build public sector work makes up about six per cent of the group’s sales.

SIG said almost all its divisions in the UK and Ireland have grown, with the exception of interiors manufacturing, which is being dragged down by “weak trading conditions” in the commercial sector, and energy management, where funding has been slow to feed through.

The group said it has made “good progress” in France, Germany, Poland and central Europe. Trading in Belgium, Luxembourg and the Netherlands remains “challenging”.

Mr Davies said the effects of the recession in the UK have been “much longer and much deeper” than downturns in other major markets in mainland Europe.

SIG recently sold its UK scaffolding and fencing business to Altrad Group for £7.1m.

All resolutions were passed at Marshalls’ and SIG’s AGMs.

Shares in Marshalls lifted 1.4 per cent, gaining 1.75p to close at 123.5p. Shares in SIG edged up 0.6p to 146.1p.

Analysts at Davy Research said SIG is arguably the most attractive investment case of its peers owing to its exposure to stronger European markets.

“We are currently forecasting underlying sales growth of 2.5 per cent for 2011 overall, so SIG year-to-date is comfortably ahead of our target,” they said.

Barratt, Bovis look to better profits

Housebuilders Barratt and Bovis Homes both said they expected to report a rise in profit after a pick-up in sales, although activity will remain limited by tight mortgage availability.

Barratt Developments, Britain’s largest housebuilder by volume, said sales rates returned to normal levels from January to May, with private selling prices up four per cent, driven by a move to houses from flats.

Smaller rival Bovis said the market had remained stable, with visitors up 20 per cent and sales rates up marginally.

The market for new houses has improved slowly since a weak autumn exacerbated by bad weather in December.