There is no denying that prominent construction materials suppliers Travis Perkins (LSE:TPK) and SIG PLC (LSE:SHI) both underwhelmed in their respective trading updates this Tuesday.
FTSE 250-listed Perkins cut its full-year forecasts after revenues slumped in the first half, while SIG announced a culling of its workforce to help wrest itself away from plummeting profit margins.
In both instances, weaker pricing and lower volumes were highlighted by management as pressing tailwinds.
City analysts responded with tepid forecasts and limp share price targets.
Those at Peel Hunt said they are “reducing expectations” on Perkins given the company’s profit guidance came in 9% below estimates.
As for SIG, Peel Hunt said “we are reducing the rate at which we assume profits will recover” throughout 2025 and 2026.
Stifel was more forgiving, having maintained previous forecasts, but in no instance did either brokerage give a buy rating on the stocks.
Their suggestion is to hold off for now, until evidence of improving profitability appears on the horizon.
But for how long?
UK construction outlook improves
Bearing in mind UK construction output has improved more than anticipated, meanwhile the recently elected Labour government swept to power on a pro-build approach, morning rays of light might actually not be too far off the horizon.
Britain's construction sector saw its quickest growth rate in over two years last month, per the latest PMI figures released today.
The S&P Global UK construction PMI rose to 55.3 in July from 52.2 in June, staying above the 50 threshold that distinguishes growth from contraction for the fifth consecutive month.
This figure also notably surpassed the market's prediction of 52.4.
“Alongside a general improvement in market demand, there were also reports that customer confidence had strengthened, making them more willing to release previously paused projects,” said S&P Global.
It added: “Construction firms remained strongly optimistic that activity will expand over the coming year, although sentiment dipped to a three-month low in July.
“Improving client confidence is predicted to help lead to growth of new orders and subsequently activity.”
As suppliers to the latter cycle of the construction phase, this doesn’t necessarily help the likes of Travis Perkins (LSE:TPK) and Sig in the short or even mid term.
Markets are probably waiting until clear evidence than ground is being broken to support Labour’s 1.5 million homes in five years target.
Until then, it could be a patience game for Travis Perkins (LSE:TPK) and Sig shareholders.