Sector movers: Builders benefit from budget, defence stocks downded
By Oliver Haill
Date: Tuesday 30 Oct 2018
(Sharecast News) - Housebuilders and construction groups were top of the pile on Tuesday thanks to treats doled out by the Chancellor the day before, while defence stocks were under water.
The Help to Buy scheme, which has been a great boon to the residential construction but been due to end in March 2021, will be extended to March 2023, although under more restrictive terms.
The changes to Help to Buy, which were not in the Philip Hammond's Budget speech but were set out in the Red Book, included a lower maximum on selling prices, to be set regionally after 2021. The scheme will also be limited to first-time buyers.
Taylor Wimpey, Persimmon, Barratt Developments, Berkeley Group, Crest Nicholson, Redrow, Bellway, Bovis, Countryside were all higher. .
Broker Canaccord Genuity said: "This extension to Help to Buy should be welcome news as it removes the uncertainty and looks supportive; particularly given the ongoing macro uncertainty around Brexit. The extension provides more visibility out to 2023, avoids a cliff edge removal and the non-first time buyer use of HtoB should be able to be comfortably managed by industry and the mortgage market."
Analyst Robin Hardy at Shore Capital noted that the existing scheme runs unaltered for another 27 months, with new limitations then coming in which will affect house builders' revenues, selling costs and margins but which avoids house builders having to invest their own capital.
"The regional price caps feel lower than the blanket £300,000 ceiling most observers had expected but otherwise, the outcome is likely to be viewed as less harmful than it might have been," Hardy said, noting that £22bn is still committed for the original lifespan of the scheme, of which £8.9bn had been absorbed.
Builders' merchants Travis Perkins and Grafton were also boosted as they are likely to benefit. Travis got a boost from Barclays too, which upgraded the shares to 'equalweight' from 'underweight', saying the risks are now fairly valued.
Generalist construction companies befitted from Chancellor's proposed increase in spending on Highways, with the £28.8bn National Roads Fund including £25.3bn for the strategic road network. Hammond also doled out £570m of immediate additional cash for pot holes, bridges and tunnel repairs.
Analysts at Peel Hunt said the additional £500m funding for the Housing Infrastructure Fund will be helpful for some in the support services sector.
The broker saw Kier as a key beneficiary of the roads spending, along with fellow contractors Costain and Balfour Beatty and motorway barrier maker Hill & Smith.
Oil engineers were leading the downside, as crude oil prices dipped 1.6% to $76.10. The oil & gas producers sector was not among the fallers as BP's best quarterly profit in more than five years offset a flat day for Shell.
Aerospace and defence stocks - led by BAE Systems, Meggit, Senior, Rolls-Royce and Cobham - followed US peers lower amid concern about possible US budget cuts after deputy defense chief Patrick Shanahan said spending could decline.
Traders also cited uncertainty around US midterm elections and Washington's new potential tariffs threat on all of the remaining goods purchased from China, worth roughly $257bn.
Top performing sectors so far today
Construction & Materials 5,310.61 +1.43%
Fixed Line Telecommunications 2,787.10 +1.16%
Gas, Water & Multiutilities 5,025.15 +1.01%
Real Estate Investment & Services 2,500.34 +0.75%
Food & Drug Retailers 3,688.01 +0.74%
Bottom performing sectors so far today
Oil Equipment, Services & Distribution 13,964.39 -2.63%
Aerospace and Defence 4,615.65 -1.95%
Household Goods & Home Construction 15,953.49 -1.94%
Tobacco 39,471.74 -1.68%
Leisure Goods 7,719.47 -1.28%
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