What's in store for housebuilders and construction companies?

Will the UK’s housebuilding and construction industry experience a glass ceiling in 2012? With a slew of company reports in the coming days, Darshini Shah looks ahead to see what investors can expect.

Investors should get a clearer picture of the sector as Morgan Sindall, Galliford Try, Barratt Developments, Redrow, Travis Perkis and Rightmove all publish their results.

Recent housing data has been mixed – Halifax has reported that house prices rose 0.6% month-on-month in January. This compares to a 0.2% month-on-month drop reported by Nationwide, whereas Hometrack reported that house prices were flat month-on-month in January.

Morgan Sindall

Morgan Sindall (MGNS) will open the curtains when it reports its full-year results on Tuesday.

The December interim management statement confirmed that the group continued to trade in-line with expectations. While the order book has eased back slightly to £3 billion, the pipeline strengthened to £2.2 billion reflecting the on-going shift towards regeneration works.

Andy Brown, analyst at Panmure Gordon, believes that there are three key issues with the company – the spending outlook, margin sustainability and the visibility on regeneration schemes.

However, he has a positive stance on the stock, driven by “the enhanced opportunity in the social housing sector, good UK infrastructure exposure, sound financials and attractive valuation”.

Shares in the company, which have rise 25% over the past quarter, are currently trading on a 2012 price to earnings ratio of about nine times, with a dividend yield of 6%.

Galliford Try

Galliford Try (GFRD) is one of the cheapest stocks in the construction sector, trading on a 2012 price to earnings ratio of about 8.5 times, with a dividend yield of about 4.5%.

The company reported a strong trading statement last month, trading off 36% more sites in the first half, with good visibility for the construction sector in 2012.

Additionally, with 86% more sales reservations generated during the first half, broker Panmure Gordon believes that Galliford Try will carry forward a “phenomenally strong performance” into the second half.

Analyst Mark Hughes is confident that full-year forecasts will be upgraded when it publishes its first-half results on Wednesday. Galliford Try is thus his top pick in the sector.

Barratt Developments

A positive trading update is also expected from housebuilder Barratt Developments (BDEV) on Wednesday.

Rachael Waring, analyst at Panmure Gordon, is expecting the group to report 5,198 completions, up 8% year-on-year, with pre-tax profits coming in at £90.5 million. Additionally, she noted that the company’s stock on loan had reduced from 12.32% at the start of the year to 9.08% this week.

She also pointed out that debt was likely to have increased to around £550 million due to the timing of land creditor payments. “This is nothing that should concern investors and we forecast a reduction in net debt to £365 million by the year end,” she reassured investors.

Despite the share price having had a strong run year-to-date, up more than 30%, Waring believes that the stock has “further to go”. The stock is currently trading on a PNAV of 0.56 times.

Travis Perkins

The December interim management statement fro Travis Perkins (TPK) indicated adjusted revenues for the 11 months up 5.5%, with no change in its trading outlook.

Additionally, with first-half pre-tax profits of £140.4 million already been reported, and the first half/second half pre-tax profits mix being fairly even in recent years, estimates for pre-tax profits profits are in the range of £297 million.

Seymour Pierce is positive on the stock, stating that the stock’s valuation was “undemanding” on a 2012 price to earnings ratio of about nine times. Additionally, the broker believes that Travis Perkins will have continued with its market share gains.

Panmure Gordon’s Brown is also optimistic on the stock. “With an attractive valuation and forecasts underpinned by the acquisition of BSS, we see potential for good news from the shares. Management has a strong record on tight cost control, essential in the current climate and it continues to deliver best in class margins,” he commented.

Redrow

Redrow (RDW) will report interim results on Thursday.

The company did not publish a pre-close statement, but did update the market at the start of November. At the time, the group reported that overall private reservations had increased 14% by value, driven by a 1% increase in volumes and 13% price growth.

Panmure Gordon’s Hughes believes that the group is likely to report weaker sales momentum than other housebuilders due to a repositioning of the business in terms of product and geography.

However, he reiterated his ‘buy’ recommendation on the stock before the results. “The company’s ‘day in the sun’ may not be far away,” he said.

Rightmove

Rightmove (RMV) will close the curtains on the sector on Friday.

At its third-quarter interim management statement in November, the company revealed “healthy gains in ARPA (average revenue per advertiser) … driven by further adoption of [discretionary] advertising products”. Discretionary spend in the third quarter was up more than 35% year-on-year.

Additionally, the outlook statement was positive, with the company expecting “to achieve further organic growth in 2012”, adding that “changes to 2012 pricing are progressing according to plan”.

Collins Stewart has a ‘buy’ recommendation on the stock. “[Full-year] results will reveal strong cash generation, tight cost control and encouraging increase in ARPA driven by further adoption of discretionary advertising products," it said.

Panmure Gordon also rates the stock a ‘buy’. However, it admitted that further upgrades would be needed if the shares are to keep performing.

Shares in the company have gained a tenth of their value over the past quarter.

Housebuilders and construction companies are not the only ones reporting en masse this month. Find out what you could expect from the big banks...  Watch: The outlook for banking shares.