LONDON (ShareCast) - (ShareCast News) - Against the backdrop of a "patchy" construction sector, broker Liberum highlighted Howden Joinery as its top pick and downgraded building materials suppliers Wolseley to 'hold' and SIG and 'sell' on valuation grounds.
Liberum felt the stock market appeared overly pessimistic on builders merchants, "as it may be overestimating operational leverage".

"RMI [repair, maintenance, improvement] has fallen out of favour but we believe that the degree of pentup demand that exists, and banks' appetites to lend, may mean that a 2017 slowdown may be shorter and shallower than feared," the broker.

Howden was picked as offering around 30% share price upside to a target price of 500p, as while concerns of a Brexit-driven slowdown are understandable, the company's management has a good track record of cutting overheads in slower markets.

"We see this as an excellent opportunity to pick up shares in a long established category-killer with a very strong balance sheet," analysts wrote.

Others with a 'buy' rating including air conditioning and ventilation specialist Volution, "a highly cash generative leader with profitable reinvestment opportunities and structural growth" with a target price of 206p; Travis Perkins on the momentum from its self-help strategy, with a target of 1,650p.

Safestyle was a 'buy' with a 335p target, for its growing market share; and Tyman too, targeting 327p, as it is "well placed" for renewed US residential growth and continues improving its businesses.

Even though the shares are trading on a low valuation, SIG was moved down from 'hold' with a target price of 88p, as "risks endure" and analysts remain concerned that margin pressure will continue due to competitive pressures from Travis Perkins and Saint-Gobain - "we wonder how much losing scale will impact the group's offer".

Wolseley, with a target price of 4,975p, was downgraded on valuation grounds even displaying attractive characteristics of good leadership, business improvement and US exposure.

Email this article to a friend

or share it with one of these popular networks:

• DIGG
• FACEBOOK
• STUMBLEUPON
• MIXX
• YAHOO BUZZ
• DELICIOUS
• REDDIT
• NEWSVINE