Jefferies has identified a handful of equities in the UK construction arena that it regards as relatively well insulated from current macroeconomic pressures, even as it lowers earnings expectations across the broader sector.
The broker's selections are notable for business models that the firm considers more defensive and valuations that it finds attractive against a backdrop of softer demand. Two names highlighted by Jefferies are Genuit and Forterra.
Genuit
Jefferies describes Genuit as a preferred choice because of its defensive attributes and longer-term growth drivers. The firm points to regulatory programs such as the Future Homes Standard and AMP8 as sources of demand that could support the company's revenue irrespective of cyclical weakness in construction activity. Jefferies also emphasizes management's documented ability to pass through input cost inflation and to preserve margins, which has limited the scale of earnings downgrades for Genuit relative to its peers.
Forterra
Forterra is cited for a compelling valuation and the capacity to generate strong operating cash flow. Jefferies notes that while it has implemented notable forecast cuts for Forterra - reflecting the company's high operating leverage - the broker expects the group to keep a conservative balance sheet position, with leverage staying below 1x. That balance-sheet strength underpins the prospect that Forterra can continue to return excess cash to shareholders, supporting its appeal within the UK brick market even amid subdued activity in the housing sector.
This coverage comes alongside across-the-board forecast reductions for the construction sector by Jefferies, but the broker believes the firms it has highlighted have characteristics that should help them deliver steadier returns in a more challenging market.