Building Materials European Building Materials – Crunch time: but is there value?

The Global Financial Crisis preceded three years of sales declines in the European Building & Construction sector. We forecast a sharper but shorter drop in sales due to COVID-19, of -18% in 2020E followed by a 15% rebound in 2021E.

17 Apr 2020

Like-for-like sales dynamics for European Building & Construction companies, % (2008-2022E)

Source: Company data, UBS estimates

The figure charts like-for-like sales for European Building & Construction companies by percentage from 2008 through estimates for 2022. The chart shows a large drop in 2009 and estimates another large drop in 2020, but a high rise in 2021E.

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.

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