Traditionally the construction industry underpins the UK economy, enjoying a revival in fortunes when the country emerges from a recession. Brexit and the Covid-19 pandemic have both weighed heavily on the sector in recent years. But hopes are high that 2021 will see a recovery across the board. The government has awarded colleges funding to improve skills and restarted construction training programs in recent months. It’s also expected to encourage a recruitment drive to help drive economic recovery. If so, this should all help boost a pleasant upturn in construction stocks.
Balfour Beatty beats expectations
Infrastructure group Balfour Beatty (LSE: BBY) is one such company. And it’s had a better year than industry analysts were expecting. In response, it now plans to reinstate its dividend and will start a £50m share buyback program next month.
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With the UK’s HS2 rail project back on track, it’s helped boost its order book to end the year significantly higher. This contains orders worth around £17bn, which is a rise of nearly 19% year-on-year. Meanwhile, full-year guidance should fall in line with 2019’s £8.4bn and monthly net cash should be slightly ahead of previous guidance.
The Balfour Beatty share price is up nearly 16% in a year, but it’s seen great volatility over the past decade. It plans to restart divestments from its infrastructure investments portfolio in 2021, which should further boost its coffers. The £1.8bn company has a reasonable price-to-earnings ratio (P/E) of 14 and earnings per share (EPS) are 19p.
Is a share price revival on the cards?
British property developer Barratt Developments (LSE:BDEV) stock has suffered this year after cutting its dividend in response to the pandemic. The Barratt share price is down 19% year-to-date. Nevertheless, it’s up 67% since the March market crash low. Its sales increased markedly between July and October, and it’s hopeful of a share price revival in 2021. Barratt has a P/E of 15 and EPS are 39p.
There are some concerns of a housing price crash in 2021. But if it did occur, it would probably only affect certain parts of the country. Signs of a housing shortage remain, so demand is likely to pick up again once normality resumes. However, Barratt relies on the government’s Help to Buy scheme for around 50% of its sales, and as we expect this to change in 2021, it could potentially affect sales.
Yet some analysts are forecasting a big earnings rebound for the sector and the potential for dividends to be reinstated. Property website Rightmove has forecast a 4% rise in house prices for the coming year.
Both these stocks look like they could make a 2021 recovery. I’m a little concerned that house prices will fall, but I still think demand should see these companies continue to make profits. I still think energy stocks are among the best shares to buy now, but I’d be tempted by these construction stocks nonetheless.