Like-for-like sales dynamics for European Building & Construction companies, % (2008-2022E)
We see some value for those who can endure significant short-term disruption
In this note we do a comprehensive analysis of: (1) potential impacts from COVID-19; (2) forecasting operating leverage drawing on the 2008-09 crisis (3) shape of normalisation / recovery into 2021; (4) balance sheet / liquidity positions; (5) valuations. For the avoidance of doubt we expect severe earnings declines in the short-term so volatility will undoubtedly be high. However we see a lot priced in with the sector down -35% year to date.
Substantial earnings cuts for 2020E; and shape of recovery into 2021E
We think infrastructure (potentially helped by fiscal stimulus) and RMI spend will normalise quicker than private new build construction in 2021E. In the short-term, these won't provide much protection because shut downs affect all activity levels similarly. We don’t think geographic diversification will help much either in the short-term (although severity of shut-downs varies across countries). We think there is more risk of a sustained downturn in markets where economies rely more on oil revenues.