Building boom to continue with annual growth of 12%

THE Republic's construction boom will continue with activity jumping by 12 per cent this year and a further 5 per cent next year, a leading stockbroker has predicted.

Davy stockbrokers said that output continued to grow at such a rapid pace that it had been forced to upgrade its volume estimates for the third time this year.

The indicators cited by analysts included the fact that employment in private firms in September was almost 9 per cent higher than at the same time last year - and nearly 20 per cent higher than in 1993 at the trough of the last cycle. Also, sales of key building materials continue to grow at around 15 per cent and there appears to be no let up in the housing market.

"The category that has surprised most is housing. After two good years in 1994 and 1995, our original forecast envisaged output rising by just 3 per cent this year falling back in 1997 by a similar amount. But it now appears that 1996 will register an increase of around 14 per cent and we expect it to edge further ahead in 1997," according to the report.

The contrast between the buoyancy of activity in the Republic and the lacklustre performance by most other economies in Europe could be seen most vividly in the construction sector, the stockbroker said.

"In the three years 1993 to 1996, total output in the sector will have grown by over 40 per cent and housing output will have risen by more than 60 per cent. Over the same period, output growth in the British construction sector would have risen by just 2 per cent, it added.

"Against such a background, it is not surprising that Irish construction shares have been very significant out-performers. Since the end of 1992 the sector index has risen by 238 per cent," Davy said.

But the report pointed out that more recent performance had been disappointing, with the sector index down over 4 per cent in recent weeks.

"This partially reflects a view by some that it is now time to apply peak cycle multiples to stocks with a dominant exposure to the Irish economy. Heiton's and Readymix now trade on around eight times current year earnings estimates," the analysts reported.

"Such ratings appear harsh. Given the strength of volume growth in the sector this year, there must be a good deal more upside than downside in the earnings estimates to which these multiples apply," Davy said.

Also, there was no evidence yet that the peak of the cycle was at hand, the report continued. Volume growth in the sector in 1997 and beyond would almost certainly be lower than that experienced in recent years, but was still likely to be significantly positive and above the rate of growth likely in the construction sector of other economies.