Flood clean up could boost UK construction

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Storm damage repair and improving flood defences could offer a boost for UK engineering and construction…

December saw the wettest weather in century, leading to significant flooding across parts of the UK. Thousands of homes and businesses were damaged, with economic losses expected to sit at more than £3bn, according to analysts at Citigroup and Canaccord.

Rebuilding these communities and shoring up defences against the next big storm is expected to boost the construction and engineering sector. Firms such as Kier Group, which carries out road repairs, and Renew Holdings, which provides services to Network Rail through its subsidiary Amco, are thought to be among those that could benefit from the post-flood rebuild.

Other firms expected to see a boost in contracts are pipe manufacturer Polypipe and paving company Marshalls.

Both Polypipe’s and Kier’s stocks are down around four per cent since 30 November. However, the two firms outperformed the broader FTSE All-Share index, which lost 6.4 per cent during the same period. However, Marshalls and Renew Holdings saw their stocks increase 0.6 and 6.6 per cent, respectively.

The government has already pledged funding to help with the clean-up operation, with some £2.3bn set aside to improve flood defences over the next six years.

Eric Moore, manager of the Miton Income Fund, who holds shares in Kier said: “If there is a policy move to spend a lot more on flood defences that could be good for some of the infrastructure players.”

Construction has already benefited significantly from government promises to get the country building homes. The sector was one of the best performing areas of the market last year. The Thomson Reuters UK Homebuilding Index gained around 40 per cent. It is thought post-flood construction could give the sector a second wind during 2016, as repair work is undertaken during the first quarter.

According to the UK Construction Purchasing Managers’ Index (PMI), December saw growth in the sector after a poor November. However, civil engineering performed badly, contracting for the first time since April.

Derek Mitchell, UK Opportunities fund manager at Royal London, whose portfolio includes Kier and engineering contractor Keller Group said:  “I would expect construction stocks to continue to do well with the prospect of further work to come from the rebuilding of those areas affected by the flooding.”

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