Sheffield-based insulation and building materials supplier SIG (SHI) is the latest company to warn that profits this year will miss expectations due to challenging conditions in the new-build residential sector.

SIG shares, which had actually gained 16% this year, fell as much as 25% in early trading to just 25.35p before recovering to 30p, down 12% on the day.

NO SECOND-HALF REBOUND

Group revenue for the three months to September was down just 2% on a like-for-like basis to £681 million, but the firm warned the recovery it had penciled in for the second half of the year had failed to materialise and there had been a further softening in demand in the final month of the quarter.

Although the group has outperformed its markets, management sees weaker than predicted demand continuing through the rest of the year with prices having neither a positive or negative impact on revenue.

As a result, full-year underlying operating profit is now expected to be between £50 million and £55 million compared with market forecasts of £67 million and last year’s tally of £80 million.

SIG is the latest in a succession of companies to warn over the weakness of the new-build market in recent days, and investors will be keen to hear from the housebuilders themselves when they start reporting next week, with Bellway (BWY) due to publish its full-year results on Tuesday 17 October and Barratt Developments (BDEV) due to issue a trading update on Wednesday 18 October.

WORST SENTIMENT SINCE THE PANDEMIC

According to the S&P Global/CIPS UK Construction PMI survey, which is sent to a panel of 150 companies in the building sector, confidence is currently the lowest since the middle of 2020.

September registered the fastest decline in sentiment since May 2020, with a reading of 45 against 50.8 in August and expectations of 49.9 (a reading below 50 indicates the sector is in ‘contraction’ mode rather than ‘expansion’ mode).

All three main segments of construction – residential, commercial and civil engineering – posted a reduction in business activity, led by a steep and accelerated fall in house building.

The rapid decline in house building activity ‘acted as a major drag on workloads, with construction companies widely commenting on cutbacks to new residential development projects in the wake of sluggish demand and rising borrowing costs’, observed Tim Moore, economics director at S&P Global Market Intelligence.

‘Concerns about the domestic economic outlook also dampened client spending during September, which contributed to the fastest reduction in commercial building since January 2021. The survey's forward-looking measures once again remained relatively downbeat as order books decreased at an accelerated pace and business activity expectations eased to the lowest so far this year.’

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