Construction firms undervalued due to low investor confidence

Published:  24 January, 2012

UK: Figures produced by business and finance advisers Grant Thornton UK LLP show many construction firms are undervalued, despite strong order pipelines due to mistrust of how the pipeline figures are assembled.

The total value of UK construction order books in December 2011 was £56.45bn up 1.85% on December 2010. However, despite a steady outlook from the construction companies the market does not seem to be responding.

In H2 2011 the FTSE 350 Construction & Materials index fell 9% whilst current figures only show a 0.96% fall in the order book value over the same period. The FTSE 100 fell 6.2%. Similarly, analysis of construction firm's share prices shows that the increase in their order book figure is not always rewarded in their share price.

Phil Westerman, head of construction at Grant Thornton said: "A construction business' forward order book is one of the key indices to generate and support both investor confidence and the confidence of other users of the financial statements such as customers, suppliers, trade insurers and funders.

"Our research shows that despite seemingly undervalued share prices for many construction companies, the order book levels show signs of growth and recovery in the sector. One of the reasons for this discrepancy is wide spread inconsistency in how order book figures are assembled. Applying standard best practice when putting these numbers together would aid reliability, consistency of the numbers and would increase users' confidence in the published information and it could also help the sector in recovery from what has been a very difficult period."

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