CRH PLC (LON:CRH) and Kingspan Group PLC (LON:KGP) are the building materials companies that are best positioned to benefit from government stimulus packages as economies open up from coronavirus lockdowns, says JPMorgan Cazenove.
“The outlook post Q1 is more constructive with the easing of lockdowns and fiscal packages to stimulate economies,” analyst Elodie Rall said in a note to clients on Tuesday.
“As governments look to kick-start their economies following the global pandemic, we expect further fiscal stimulus to focus on increases in infrastructure/construction expenditure, which would disproportionately benefit the building materials sector,” she added in a separate note.
With US states facing a drop in transportation revenues from less fuel taxes collected due to the lockdown, coupled with the impending expiry of an existing federal funding act, the government will look to enact a large-scale infrastructure bill.
“However, while stimulus in the US remains up for debate, within the EU, we have much greater clarity, aside from HS2 in the UK and Grand Paris in France – the EU has proposed its own recovery plan, which if approved will result in a large-scale renovation wave, which we estimate would lead to upside of on average 8% per annum for both resi/non-resi renovation expenditure.”
Driven by upward revisions to US forecasts, the investment bank has increased its underlying profit estimates for the European building materials sector this year and next by 10% and 3%.
With sector shares currently trading at a 13% discount to the market, and believing that any further stimulus could compensate for a weaker volume environment, the analyst said her team’s preference is for stocks likely to benefit most from government supports, namely EU and US and with renovation and infrastructure exposures.
As a result of all this, the share price targets were lifted for CRH to €32 from €29 and for Kingspan to €60 from €54, as this Ireland-headquartered pair are seen as being major potential beneficiaries.