As anyone who is in the process of having work done on their house will know, lack of product availability and soaring prices for materials are proving a real headache for contractors.
The bad news for homeowners - and the building industry - is that inflation is proving stickier than expected, as a raft of suppliers have indicated this week.
PRICES STILL RISING
Insulation maker SIG (SHI) said today it had made a strong start to the year and that ‘in addition to robust demand, we have seen further impetus to sales and profit as a result of continuing input cost inflation’.
Sales in the quarter to March were up 25% on a like for like basis, ‘well ahead of previous expectations’, with almost 20% of the increase due to price hikes, the firm said.
Given this rip-roaring start to 2022, SIG now sees full year trading ‘significantly ahead’ of its previous forecasts.
SIG shares jumped 13% to 41.5p on the update.
Building materials distributor Travis Perkins (TPK) announced its group sales for the first quarter were up 13.6% on last year.
Merchanting sales were up 17.9%, with price hikes accounting for two thirds of the increase as ‘manufacturer increases continue to be passed through in an orderly manner’.
The firm also revealed input price rises were likely to last longer than it had previously thought.
‘The group's forecast for materials price inflation, which was originally expected to ease into the second half of the year, is now more uncertain with pricing likely to form a higher proportion of sales growth across the year than previously thought.’
Dublin-based distributor Grafton (GFTU) said this week sales for the year to mid-April were up 17.5% on a constant-currency basis.
It also confirmed price inflation in its core building materials ranges ‘continued to be a key driver of revenue growth across the group’.
UNDERLYING DEMAND
The core source of demand for building materials is the new-build housing market, which for now continues to thrive despite interest rate rises and the cost of living crisis due to the chronic under-supply of modern homes.
This demand, combined with continued supply chain challenges and shortages of raw materials, means product availability is tighter than ever.
Companies that can manage their supply chains and ensure they have the products people want, when they want them, can pass on their full input costs and more as long as order books in construction remain strong.
However, given the pressures on consumer spending, we wonder how long the RMI (repair, maintenance and improvement) market will hold up.
The small building trade - which also uses firms like Travis Perkins and Howden Joinery (HWDN), which reported strong sales this week - seems to have enough work to tide it over for now, but investors would do well to watch for companies lowering their guidance in coming months.
