Worried about the impact that Brexit will have on your investments? Here are two companies that could soar if the UK strikes a deal with the EU in the days ahead.
Construction time again
The housebuilding and construction sector was one of the hardest hit after the 2016 referendum. It has partly recovered, as house prices have shown plenty of resilience.
Today’s ONS figures show growth of 2.5% in the last year, below the glory days of double-digit growth, but respectable given current worries. Despite this, investors remain nervous. Many housebuilding stocks are trading at massive discounts, while offering investors yields as high as 10% in some cases. This could be a massive buying opportunity as sentiment is likely to surge if we get some clarity on Brexit.
FTSE 250 construction group and housebuilder Galliford Try (LSE: GFRD) has a crazy forecast yield of 10.2% a year. That’s more than 5.5 times the current consumer price inflation rate of 1.8%, and six or seven times what you would get on easy access.
The group’s stock is up 7.5% today after it posted a 4% rise in pre-exceptional pre-tax profits to a record £84.2m, as it built more houses. Its Linden Homes and Partnerships & Regeneration ops built a total of 3,069 homes, up from 2,878 last year.
Net debt fell from £85m to £40m during the first half of the year, while average net debt fell from £203m to £126m. Chief executive Peter Truscott hailed “a strong financial and operational performance”, adding that the group is well capitalised with average net debt below previous guidance. Galliford declared an interim dividend of 23p, down from last year’s first-half payment of 28p, in line with its policy of keeping cover at 2. This suggests to me that the dividend is secure, despite its large size.
Truscott said current political uncertainty is hitting consumer and business confidence, and Linden Homes could take a hit if the UK leaves the EU without a deal, due to a potential severe decline in consumer confidence and economic activity. Galliford is preparing for any supply chain disruption while “noting that it is impractical to try to insulate our business entirely”. Trading at just 5.1 times forward earnings, the risk is in the price.
FTSE 100 housebuilder Taylor Wimpey (LSE: TW) has also been through a rough patch, its stock down 10% over the past year. That leaves it trading at around 7.9 times earnings, though, which suggests another bargain to me. I’m not the only one, Peter Stephens says it has a strong balance sheet with a net cash position, which should sustain dividend growth.
The stock currently yields an almighty 11%, although cover is relatively thin at 1.1 times earnings, so it does need to keep the cash flowing to fund it. One piece of good news is that the Help to Buy scheme has been extended to 2023, underpinning first-time buyer demand.
The housing market needs a happy Brexit, if there is any such thing. If the cloud is lifted, Galliford Try and Taylor Wimpey could fly. Westminster will decide that. You could take a chance and buy now. Just know the risks.
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harveyj 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.