Surfing the waves

Seers and economists are obsessed with waves. The latter also tell me that they can be measured by the following formula: y=ASin(k*x).

Here “y” (the value of the vertical coordinate) is a function of the Sine of “‘x”, which is the horizontal coordinate, “A” is amplitude and “k” is the multiplier which either extends or curtails duration. In turn, the crest of a wave is the point with the maximum value or upwards displacement within a cycle.

More prosaically, any surfer dude will tell you that every seventh wave is a big one; and so it is with the value of UK construction and building shares listed on the London Stock Exchange (LSE).

The Building Value UK Construction & Building Sector Index (which amalgamates all relevant stocks from a range of LSE sectors classifications) - see below - swelled to £66.9bn on 31 December 2013 which means that for the first time in seven years is was worth more than at the end of 2006 (£62.2bn).

On the winners and losers in the 2013 surf riding competition, Michelmersh Brick Holdings took first place

That said, the number of listed participants has shrunk from 112 to 78 (2012: 77).

Retrospectively, the index hit a trough at the end of 2008 (in the wake of Lehman Brothers going bust) with a value of £21.4bn. Surf was up in 2009, though, with a 49% rise and then a fifth was added in 2010, before flattening in 2011 (something of a false dawn).

Two stellar years followed with surges of +25% and +42% in 2012 and 2013 respectively. In turn, this would have placed the Industry at number six in the FTSE 100 after GlaxoSmithKline and ahead of British American Tobacco. Note, too, that the FTSE 100 rose by just 14% in 2013.

When comparing 2006 and 2012 by sub-sector, half of them are riding higher than seven years ago: support services (+30%); plant (a staggering +211%); contractors (+9%); and distribution (+39%).

This means four are lower: aim (-1%); consultants (-20% and led by acquisitions); housebuilding (-10%); and building materials (which has lost nine tenths of its value since 2006; again, through acquisitions).

In terms of the spread of value, two sub-sectors dominate i.e. housing (29%); and distribution (26%); and, yet they only account for 10% and 5%, respectively, of the total number of companies here.

There are also 10 companies with a market value of more than £1bn which account for 60% of total value but only 13% of participants. At the other extreme 35 companies (45%) are worth less than £100m and account for just 2% of Industry value.

On the winners and losers in the 2013 surf riding competition, Michelmersh Brick Holdings took first place with a share price gain of 236%, while at the other extreme, Silverdell has had its stock exchange listing cancelled and “it is not anticipated that shareholders will receive any return for the shares they hold”.

The index excludes 12 non-UK domiciled companies (2012: 13) which are listed on the LSE with a total value of £39.4bn at year end, which was up 20% year on year.

Tony Williams is founder and chief executive of Building Value

BVL UK Construction and Building and Materials Index 2006-2013