Market Commentary - Housing, Infrastructure, Construction and Services 25th October 2016
There is no directly relevant new today though Carpetright is often a good read across and it had a trading update today. The best riser yesterday was up 0.7% (Balfour Beatty, closed at 281p) and the worst loser was down 1.5% (Berendsen, fell to 1230p). The small range of movement being indicative, in our view, of a lack of direction at present.
The half term break has made the market quite subdued and company news scarcer
There is no directly relevant new today though Carpetright is often a good read across and it had a trading update today. In the UK floorcovering sales and spend on housing (RMI and new build) have an understandable close correlation. The news from Carpetright about the market is unclear as the company’s own position incorprates a lot of noise, due to its restructuring. But the statement confirms that consumer demand is variable and that sourcing costs are rising due to FX moves. The company states that the market is competitive but we have rarely seen a company state that conditions are easy. FX will have a greater impact on carpet retailers than on Builders Merchants due to sourcing patterns but the latter are not immune to sterling’s lower value. Carpetright’s findings on the market confirm recent evidence in HICS stocks. The key issue is if, when and how variable levels of consumer confidence might appear in new build markets. Our sense is that it will appear soon but the impact will be subdued and affect pricing, more than volume and that the regions outside London will see more positive conditions than those around the M25 area, due to Brexit adjustments.
The best riser yesterday was up 0.7% (Balfour Beatty, closed at 281p) and the worst loser was down 1.5% (Berendsen, fell to 1230p). The small range of movement being indicative, in our view, of a lack of direction at present. Berendsen, Compass, Rentokil and Homeserve have shown strong moves YTD so some slowing was always likely. Recent upwards moves have been in part FX inspired and in recent trading sesions £ appears to have ceased its decline and has risen a tad. Broker comment in recent days has pointed to valuations being full. We mentioned BBY yesterday in the context of the Intrinsic Value of its Infrastructure Portfolio and the strategic options ahead. Our view remains that 281p is not expensive on 2/3 year view.
The half term break has made the market quite subdued and company news scarcer. The good news though is that we have got through October (well almost) without a major blow up in the market in what is the most dangerous month of the year for sell offs. For the UK, of course the FX rate has been the buffer that has absorbed expectations of a Brexit induced economic decline. And as we showed yesterday that while the market as a whole may have been stable n HICS stocks there have been some considerable shifts in individual stocks. The next move may be for sterling to strengthen a little if the growing call for a softer/smooth approach to Brexit gathers pace. So there are reasons to stay alert!
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