Liberum sees market as 'overly pessimistic' on builders merchants
Against the backdrop of a "patchy" construction sector, broker Liberum highlighted Howden Joinery as its top pick and downgraded building materials suppliers Wolseley to 'hold' and SIG and 'sell' on valuation grounds.
Construction & Materials
9,840.88
17:09 24/04/24
Ferguson
16,925.00p
16:40 24/04/24
FTSE 100
8,040.38
16:34 24/04/24
FTSE 250
19,719.37
17:09 24/04/24
FTSE 350
4,419.71
17:09 24/04/24
FTSE AIM 100
3,638.66
16:44 24/04/24
FTSE AIM All-Share
754.69
16:50 24/04/24
FTSE All-Share
4,374.06
16:44 24/04/24
FTSE Small Cap
6,434.18
17:09 24/04/24
General Retailers
3,926.04
17:09 24/04/24
Howden Joinery Group
870.00p
16:40 24/04/24
Safestyle UK
0.32p
17:30 15/01/24
SIG
27.55p
16:45 24/04/24
Support Services
10,566.99
17:09 24/04/24
Travis Perkins
712.50p
16:35 24/04/24
Tyman
393.00p
16:40 24/04/24
Volution Group
414.00p
16:40 24/04/24
Liberum felt the stock market appeared overly pessimistic on builders merchants, "as it may be overestimating operational leverage".
"RMI [repair, maintenance, improvement] has fallen out of favour but we believe that the degree of pentup demand that exists, and banks’ appetites to lend, may mean that a 2017 slowdown may be shorter and shallower than feared," the broker.
Howden was picked as offering around 30% share price upside to a target price of 500p, as while concerns of a Brexit-driven slowdown are understandable, the company's management has a good track record of cutting overheads in slower markets.
"We see this as an excellent opportunity to pick up shares in a long established category-killer with a very strong balance sheet," analysts wrote.
Others with a 'buy' rating including air conditioning and ventilation specialist Volution, "a highly cash generative leader with profitable reinvestment opportunities and structural growth" with a target price of 206p; Travis Perkins on the momentum from its self-help strategy, with a target of 1,650p.
Safestyle was a 'buy' with a 335p target, for its growing market share; and Tyman too, targeting 327p, as it is "well placed" for renewed US residential growth and continues improving its businesses.
Even though the shares are trading on a low valuation, SIG was moved down from 'hold' with a target price of 88p, as "risks endure" and analysts remain concerned that margin pressure will continue due to competitive pressures from Travis Perkins and Saint-Gobain - "we wonder how much losing scale will impact the group's offer".
Wolseley, with a target price of 4,975p, was downgraded on valuation grounds even displaying attractive characteristics of good leadership, business improvement and US exposure.