Building sector undermined by fragile consumer confidence

Published:  06 July, 2010

UK: Yesterday, on a flat day for the stock market, shares in B&Q owner Kingfisher added 2.9p to 210.7p despite signs of a consumer spending slowdown. One of the biggest moves in the FTSE 250 Index came from BSS after it backed the cash and shares takeover offer from Travis Perkins.

The proposal valued BSS at £558 million, slightly higher than previously thought and sufficient for its shares to rise another 14.2p to 430.4p. Travis Perkins, which has targeted cost savings from the deal of £25m a year by 2013, added 3.5p to 758p.

Travis Perkins provides an upbeat assessment of trading conditions and expects growth from low-carbon initiatives to stimulate business. But there is still concern about the sector with brokers downgrading builders' merchant shares.

The Daily Telegraph's Questor recommends 'Avoid' for Travis Perkins shares, despite the company's decision to renew dividend payouts. Questor is concerned over general trade demand likely to come under pressure from public spending cuts.

Stability has returned to the UK house buiding sector market this year but fragile consumer confidence continues to undermine the foundations. Fears of a double-dip recession faded earlier this year, but now they have returned to the fore prompting UK share prices to fall sharply.

Some analysts like Credit Suisse acknowledges that the UK housing market still faces problems from restricted bank lending which could constrain recovery for at least a couple of years more.

Although a further economic shock is unlikely to damage construction levels significantly more - house building remains at the lowest levels since the 1920s - builders' merchants are exposed to falls in consumer confidence and government cutbacks in local authority spending, say analysts.

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