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Will construction stocks see a share price revival in 2021?

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Portrait of construction engineers working on building site together
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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. 

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Kirsteen has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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