If (like me) you own shares in one or more of the FTSE 100’s construction stocks, I suspect your patience is wearing thin. I first took a position in Persimmon before the pandemic. I thought the disruption to Britain’s building sites would be temporary so I held tight even though the group’s share price went into slow decline.
We then entered a period of double-digit inflation as supply chain congestion and higher energy prices took hold. The Bank of England’s (BoE) response was to increase interest rates which brought on a cost-of-living crisis and dampened mortgage demand. Again, I sat back and watched.
In July 2024, the country elected a new government, which promised to introduce a series of planning reforms that would get the country building again. There was a post-election rally in housebuildng stocks with Persimmon’s share price increasing 17% during the following three months. Since then, it’s fallen around 38%.
What now?
Today (5 September), I still hold my shares. Unfortunately, I’m sitting on a large paper loss. In my defence, I’ve picked up some pretty good dividends along the way. And in my view, successful long-term investing is all about ignoring the stock market’s usual peaks and troughs. However, I can’t help but feel frustrated that the stock — and the sector — appears to be out of favour with investors.
At least I can take some comfort from the fact that all of the FTSE 100’s builders have suffered similarly. It’s not as if I picked the wrong one. Over the past 12 months, all have seen their share prices fall significantly.
| Stock | 12-month share price movement (%) |
|---|---|
| Taylor Wimpey | -38 |
| Persimmon | -32 |
| Barratt Redrow | -27 |
| The Berkeley Group Holdings | -27 |
Same but different
However, across the Irish Sea, things are more positive. Since September 2024, Cairn Homes (LSE:CRN), Ireland’s largest builder of houses, duplexes and apartment blocks, has seen its stock increase in value by 18%.
And yet the fundamentals of the housing market are very similar to those in the UK. There’s a shortage of properties and young people struggling to save for a deposit. A bit like the cladding scandal here, safety defects have been found in apartment blocks in Dublin. And higher prices are squeezing incomes.
Green shoots
However, Cairn Homes says it’s experiencing “exceptionally strong sales momentum”. This week, when it published its interim results for the six months ended 30 June (H1 25), it announced a 17% increase in its order book to €1.54bn, or 4,092 units.
And driven by a surge in first-time buyers, it’s expecting a much stronger second half to the year. In July, Ireland’s loan approvals were up 12% month-on-month, with 61% being granted to new borrowers. In the UK, net borrowing fell £900m.
| Measure | H1 25 (actual) | H2 25 (forecast) | FY25 (forecast) |
|---|---|---|---|
| Revenue (€m) | 284 | 660 | 944 |
| Operating profit (€m) | 42 | 160-165 | 202-207 |
In a further boost to demand, the European Central Bank’s main interest rate has been cut from a post-pandemic high of 4% to 2%. By contrast, the BoE’s has fallen from 5.25% to 4%.
Cairn Homes also announced an 8% increase in its interim dividend.
Despite this positive backdrop, the group faces some challenges. Construction cost inflation is affecting its margin. And it has higher borrowings than its UK counterparts.
However, it looks as though the Irish housing market is recovering more quickly than in the UK. On this basis, those wishing to have a housebuilding stock in their portfolio could consider Cairn Homes.
