The building materials sector was once a closely watched sector in the FTSE Indices. It was pored over by analysts and economists, looking not just for clues about the performance of particular building sub-sectors but for signs about the direction of the economy as a whole. It was discontinued by FTSE some years ago, mainly the result of a rampant decade or two of mergers and acquisitions i.e. piece by piece, since 1997, household names, FTSE 100 constituents and behemoths have been acquired by largely continental European suitors. The list includes Aggregate Industries, Baggeridge Brick, Blue Circle, BPB, ECC, Foster Yeoman, Hanson, Hepworth, Ibstock, Marley, Meyer, Pilkington, Redland (the first big one), RMC, Rugby (to RMC) and Tarmac.
Most of what was left of the old building materials sector was incorporated into the new ‘Construction & Materials’ sector. However, this is a very different beast in terms of characteristics because it, as the name suggests, has a large smattering of construction stocks, which have very different financial characteristics.
If the sector existed today we suspect that analysts and investors would be excited by its prospects. UK GDP is moving along nicely, Europe is at last recovering (albeit with some risks related to Greece) and UK construction activity is strong. Confidence in the UK housing market is high, commercial activity is flying and there are a number of substantial public projects – Crossrail may be past its peak, but construction of the £4bn Thames Tideway Tunnel is scheduled to start soon to be followed by the £16bn Hinckley Point C nuclear power station. This means it is particularly relevant to investors, to see a ‘reconstruction’ of the old sector, consider how it has performed and how it might in the future.
Admittedly the choice as to which companies would be included in the sector is ours, rather than the result of prolonged discussions among a carefully selected group of senior market practitioners. Nevertheless, our building analyst, Tony Williams, has 30 years of sector experience, having been highly ranked at major investment banks for much of his career, so we think we are probably very close to what the outcome would have been. We have also eschewed distributors, namely SIG, Travis Perkins and Wolseley plus the Irishdomiciled hat-trick of CRH, Grafton and Kingspan, together with newcomer hybrids Tyman and Volution.
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