Non-Residential Construction Boom

Submitted by Craig Strzelecki on 10 November, 2006 - 17:08

A non-residential construction boom is coming according to stock analyst Macquarie Research Equities (MRE). The number of upgrades to estimated major project construction work for 2007 has increased and in MRE's estimates that this could "reflect strong underlying demand and a freeing up of resources with the completion of a number of large projects. Major project work in 2006 increased 20% to $A20.7bn." According to the analyst, the main sectors driving these non-residential construction upgrades are mining, utilities and energy. There are also "material upgrades" for roads, pipelines and offices. "Retail and hotels remain soft spots." Key drivers for the upswing remain in place, drivers include the China driven commodity boom and the planned ramping up of state government infrastructure plans. "Of the $A11.6bn increase in the value of projects across 2006 and 2007 that we have identified over the last 6 months, cost increases accounted for one quarter of this increase, up from one-fifth 6 months ago." MRE identifies Leighton, Boral and OneSteel to be the best leveraged for the construction upswing. Stocks in the financial sector that are the best positioned are Macquarie Bank and Babcock & Brown. Small caps that are the best leveraged are: WorleyParsons, United Group, Transfield, Coates Hire and Fleetwood.

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