Brick makers Forterra and Ibstock hit record highs on Friday after Berenberg tipped them as a way to play the UK’s housing shortage.
New home construction should be underpinned in the short term by the Help To Buy subsidy, and over the longer term by government support to bring smaller builders back into the market, Berenberg said.
Its team estimated that the UK’s shortfall now stood at 1.1m homes, up from 450,000 identified in the government-commissioned Barker review in 2004.
The shortage should translate into steady volumes for Ibstock and Forterra as four-fifths of new UK homes use brick cladding, Berenberg said.
Substitution risk looks minimal, barriers to entry are high and the top three suppliers control more than 90 per cent of the market so, given that brick costs account for just 1 per cent of the price of a new home, industry pricing power is strong, it said.
That means Ibstock and Forterra are “mispriced”, trading at discounts to the construction sector of 20 per cent and 30 per cent, respectively, the broker told clients. Both stocks gained 2.9 per cent in response, with Ibstock closing at 237.6p and Forterra at 255.3p.
A wider market rally lifted the FTSE 100 to a new record high, up 0.7 per cent, or 48.76 points, to 7,435.39. For the week, the index was up 1.2 per cent.
AstraZeneca jumped 9 per cent to £51.76 after saying that a late-stage trial of its Imfinzi immuno-oncology drug for lung cancer showed that it significantly reduced the risk of death and of the disease worsening. AstraZeneca released the interim data earlier than expected, ahead of its keenly awaited Mystic trial.
According to Berenberg, Roche, Merck and Bristol-Myers Squibb all have similar drugs in development “but these trials are not expected to read out until around September 2019 at the earliest, so Astra now appears to have a meaningful lead in this setting”. It estimated a market opportunity for the indication of more than $4bn.
Hikma weakened a further 2 per cent to £17.59 after saying on Thursday that its generic version of GlaxoSmithKline’s Advair inhaler was unlikely to win US regulatory approval this year. GSK rose 2.3 per cent to £16.65.
Petrofac tumbled 14.1 per cent to 700p after the Serious Fraud Office said that it was investigating the group and its subsidiaries for suspected bribery, corruption and money laundering. Petrofac said it believed that the investigation was linked to an SFO probe into the Unaoil consultancy.
“The news is unwelcome in so much as, in our view, Petrofac needs all the support it can get from clients to win the $4bn of new engineering and construction work we see as minimum to meet our (low end of consensus) revenue estimates,” Jefferies said.
