Construction firms 'undervalued'

Investors undervalue UK construction companies because they don’t trust companies’ reporting of forward order books, according to a study from Grant Thornton.

The firm said that the value of listed construction firms fell 9% in the second half of last year, while there was only a 0.96% fall in the value of future order books.

In an analysis looking back over the last three years, the firm said that increases in order books have not been rewarded by share price increases.

In addition to forward order books, investors also take in to account many other factors, such as the potential for longer term growth, projected profitability and quality of management in their valuations of companies.

However, Phil Westerman, head of construction at Grant Thornton, said widespread inconsistency in the way firms report future order books could be contributing to the lack of confidence investors appear to show in it.

He said: “A construction business’ forward order book is one of the key indices to generate and support both investor confidence and the confidence of other users of the financial statements such as customers, suppliers, trade insurers and funders.”

He added: “Despite seemingly undervalued share prices for many construction companies, the order book level shows signs of growth and recovery in the sector.

“Applying standard best practice when putting these numbers together would aid reliability, the consistency of the numbers and would increase the users’ confidence in the published information and it could also help the sector in recovery from what has been a very difficult period.”