Despite an upswing in May, the Construction PMI continues to remain in the contraction zone

  • Jun 07, 2020 BST
  • Team Kalkine
Despite an upswing in May, the Construction PMI continues to remain in the contraction zone

The coronavirus pandemic deeply impacted the housing and construction sector in the United Kingdom. The lockdown imposed by the government ensured that most of the construction site workers were not able to report for work. Material procurement and material delivery to the worksites were also hampered. Many of the existing projects that were progressing until the time of the lockdown were also suspended indefinitely and no new orders are in pipeline. Overall the production activity in the industry came to a standstill, with most of the companies in the industry staring at staggering losses.

In the month of April, the IHS Markit/CIPS UK Construction Purchasing Manager Index reached a low of 8.2 which was the lowest in the history of the survey since it started 23 years ago. The sudden drop in business activity levels and uncertainty on how long the lockdown will continue meant that several of the companies in the sector could possibly go bankrupt. After seven weeks of lockdown that started on March 23 this year; however, the government decided to open up the economy in a phased manner so that business activity in some of the key sectors like housing and construction could be restarted. The sharp recovery of the IHS Markit/CIPS UK Construction Purchasing Manager Index for the month of May to 28.9 is a testimony of that. However, the index is still in the contraction zone, being less than 50, and it could take several months before it recovers enough to get in the expansion zone of greater than 50, as the social distancing measures in place have ensured that activity levels in the industry remain subdued.

The construction sector is a very important industrial sector for the British Economy. The industry contributes nearly six per cent to the British economy’s GDP, and the industry employs more than 2.4 million people in the country, which is about 6.6 per cent of its entire workforce. However, what makes the industry all the more critical is that it employs close to 3 million people in the country. Thus the importance of construction sector PMI is critical in the construction of the composite PMI as it is able to gauge the sentiments of more than a third of the country's workforce.

The business activity in the sector would, however, continue to stagnate for some more months now because of the pandemic. The phase-wise opening of the economy will ensure business activity picks up, but in a very slow manner. However, the full potential of the sector will only be realized after a vaccine comes out and most of the British people and vaccinated. Currently, the most promising candidate for a vaccine will not be ready before September, add to it another six months at least for all citizens to get vaccinated. Thus full business activity levels in the country would take at least till the end of the first quarter of 2021 to be restored.

Below are five prominent housing, construction and infrastructure building companies in the United Kingdom whose business had been impacted by the lockdown.

Balfour betty plc - Balfour Beatty Plc (LON: BBY) is a provider of infrastructure solutions related to management services, maintenance and upgrade in road and rail, utility infrastructure and power transmission. The company’s operations are divided into three reportable segments being Construction Services, Support Services, and Infrastructure Investments.

The shares of Balfour Beatty Plc have been trading in the positive territory since the past one month since the lockdown was eased. On the 6th of May 2020, the shares were trading at GBX 253.60, while at 4.35 pm GMT+1  on June 5, they were trading at GBX 262.40 with a loss of 0.23 per cent.

Galliford try plc - Galliford Try Plc (LON: GFRD) is a UK based Household Goods company engaged in the business of housebuilding, regeneration, and construction. Its areas of operation are categorized into segments like Linden Homes, Galliford Try and Morrison Construction.

The shares of Galliford Try have, however, underperformed marginally since the lockdown was relaxed in the United Kingdom. The shares of the company were trading at GBX 141.98 on 6th May 2020 while at 4.35 pm GMT+1 on June, they were trading at GBX 132.58, at a loss of 0.23 per cent.

Morgan sindall group plc - Morgan Sindall Group PLC (LON: MGNS) is a London, the United Kingdom-based leading UK construction and regeneration group which operates nine separate businesses and specialises in construction, regeneration, property services, infrastructure, fit-out, housing and development. The company is regenerating cities and building new infrastructure with much-needed housing and public spaces.

Morgan Sindall Group has been performing well since the lockdown was relaxed, it was trading at GBX 1206.00 on 6th May 2020, and while at 4.35 pm GMT+1 on June 5, it was trading at GBX 1310.00, with a gain of 3.48 per cent.

Vistry Group plc - Vistry Group Plc (LON: VTY) is a residential construction company. Formerly known as Bovis homes Group Plc, the company identifies, acquires, designs develops and sells residential properties. It also involves in landscaping activities. The company's portfolio of properties includes one- and two-bedroom coach houses and apartments, three-storied townhouses, four- and five-bedroom family homes, retirement living, social housing and partnership housing. The group has operations in England and Wales and headquartered in Kent, in the UK.

The company has also been doing well since the lockdown opened, it was trading at GBX 761.50 on 6th May 2020 while at 5.04 pm GMT+1 on June 5, it was trading at GBX 860.00, showing a gain of 3.3 per cent.

Redrow plc - Redrow Plc (LON: RDW) is a prominent British company in the business of residential housing development in Wales and England. The company’s product range is mainly focused on regional businesses in Greater London and traditional family housing in its apartment schemes.

Redrow Plc has also been trading in the positive territory since the opening of the lockdown, the shares of the company were trading at GBX 451.80 on 6th May 2020 while on June 5 they were trading at GBX 522.50, displaying a gain of 4.5 per cent at 4.35 pm GMT+1.

 


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