How to buy into the big investment trends

Founder and Publisher of the Switzer Report
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As we head into a new financial year, it’s a good time to look at the trends that will be driving the markets over the next 12 months. Here is an extract from a limited edition Switzer Super Report eBook on five investment trends for the new financial year. Click here if you would like a copy of the publication.

Construction

The end of the mining boom means there will be a drop off in engineering related construction, but that is likely to be picked up by residential and commercial property construction and, to some extent, road and transport projects.

The Australian Industry Group Construction Outlook for May shows the sectors that
 are expected to do well (see graph), and apartments and commercial (non-residential property) construction can expect robust growth rates in 2014, and the trend to continue in 2015.

Like shares, the property market has enjoyed a good year, but it takes a while for demand to filter through to construction for new properties, which means supply – and the construction that necessitates – of new residential homes and apartments will come on the market over the next 12 months.

The Australian Industry Group is forecasting apartment construction growth of 10% in 2014 and 9.6% in 2015.


Recent government announcements around spending on new roads and transport projects will start to filter through to actual construction in 2015, and the NBN will see ongoing growth in transmission and telecommunications construction.

The listed companies in this sector most likely to be able to leverage this growth, and who are less exposed to mining construction (which is forecast to fall), include the likes of Leighton Holdings (LEI), Downer EDI (DOW) and Boral (BLD).

For Leighton Holdings, mining contracting only accounts for 24% of operating revenue and construction-contracting revenue is growing. But potential investors need to keep an eye on how controlling shareholder Hochtieff (and its Spanish parent ACS) restructures and sells off parts of the business.

Downer EDI has more exposure to
the infrastructure sector but also has operations in rail. Mining accounts for a smaller percentage of revenue. It has been undergoing an efficiency drive and appears to be dealing with declining revenue in mining.

Boral and CSR don’t operate in mining services and are pure construction plays. Boral has just signed a JV with USG in gypsum that is expected to help its outlook, and CSR’s building products are performing well, with a slight drag in the glass and aluminum divisions.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

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