UK builders’ merchants and suppliers are sounding notes of cautious optimism, as they benefit from pent up post-recession demand for housing and a mild winter helping British construction.
Two companies have in the past week reported profit growth, driven by a pick-up in activity towards the end of 2016.
Paving and concrete maker Marshalls said on Wednesday that pre-tax profits rose by 31 per cent to £46m last year.
Sales to UK households were particularly strong, which Martyn Coffey, Marshalls’ chief executive, attributed to property owners investing in their homes with funds they can now access through pension equity release.
Despite the Brexit related uncertainty, Mr Coffey said the company had seen “no change” in the daily rate of orders it received — although he added the second half of 2016 had improved on the first.
The company said sales and orders had been “strong in the first couple of months of 2017”.
Analysts at Panmure Gordon and Canaccord Genuity said they were raising estimates for Marshalls’ 2017 full-year earnings to £49m.
Home improvement also boosted Grafton, a builders’ merchant and DIY purveyor. The £1.5bn market capitalisation group last week reported adjusted profit before tax — before one-off acquisition and other costs — up 14 per cent to £136.2m for 2016.
Grafton said the final months of 2016 were strong, although the second and third quarters were weaker amid “subdued activity in the housing market”.
The group said its Selco brand, which sells to builders, was boosted by residential demand for repair and maintenance services. It opened seven UK Selco branches last year and plans to open 10 more in 2017.
John Newcomb, managing director of the Builders Merchants Federation, said the merchants sector “had a reasonably good year, with growth anywhere between 5 and 6 per cent”. He cited clement weather conditions and pent up demand for housing from previous years.
Members of the federation had positive expectations for the first quarter of 2017, with 41 per cent of general merchants saying they anticipated more than 5 per cent sales growth.
Mr Newcomb added that 2017 had started well — although Brexit is “a bit of a sword of Damocles hanging over us”.
Repair and maintenance revenues are closely linked to house purchases, as homeowners do up new properties or refresh them for the market. The Office for National Statistics reported that UK housing transactions hit a 10-year high in March 2016.
However a fiercely competitive plumbing and heating sector challenged companies last year, with Grafton closing 47 branches across its UK plumbing and heating contracts businesses, incurring a £19.7m exceptional charge
Travis Perkins, which fell out of the FTSE 100 in December and this month reported that 2016’s pre-tax profit was down 0.3 per cent, had to restructure its plumbing and heating business after “unsatisfactory performance”.
It was not the only merchant wounded in 2016. Building supplies company SIG appointed Meinie Oldersma as its new chief executive on Tuesday, after a torrid year in which the company warned on profits and suffered a share price fall of almost a quarter.