DIY Investor Magazine | Issue 29

Page 13 - DIY Investor Magazine | Issue 29
P. 13

    The UK stock market is home to manufacturers such as Ibstock who have a strong focus on the domestic UK market and an extensive product range, offering over 450 types of bricks.
It also has a focus on sustainability, procuring 100% of its electricity from renewable sources.
Other examples include Breedon Group, a provider of aggregates, cement and other construction materials,
whose operations are focused on the UK and Ireland. Again, sustainability is a focus with local suppliers and services used whenever possible.
As well as the structural growth opportunities, we would also highlight that the construction materials sector is one that is quite fragmented in the UK. Mergers & acquisitions could therefore offer another pillar to the investment case for companies in the sector.
It’s not only the construction of new homes that is driving activity in the sector; renovations to existing buildings are an important aspect too.
Repeated lockdowns and consequent prolonged periods of time spent at home are motivating many people to sort out household renovations or building projects. For example, desire for more space is leading many people to build extensions where possible.
Then there are the many improvements that homeowners are looking to make given the UK’s housing stock is relatively old. Improvements to heating, particularly the installation of underfloor heating and energy-efficient systems, are high
on many people’s ‘to-do’ lists after a winter spent at home in lockdown.
Ventilation is another area gaining in importance. The Covid-19 crisis has brought home how vital it is to keep rooms ventilated to prevent the spread of viruses. But even before the crisis, British people were spending 90% of their time indoors
and therefore the quality of air we breathe indoors is hugely important.
The ventilation aspect is even more critical for public buildings – schools, offices, shops, theatres, etc – given the restrictions imposed due to Covid. We could be in for a long period of improvements being made to all kinds of existing buildings.
Indeed, companies operating in the sector are already benefitting from these trends. Ventilation specialist Volution Group, for example, reported organic revenue growth of 7% for the first two months of its current financial year (August and September 2020). Polypipe Group, a provider of sustainable piping for heating and drainage, said recent trading had exceeded expectations, with revenues for November 2020 8% higher than for November 2019.
Fresh equity helps unlock growth potential
Hopefully the argument above demonstrates how the UK’s industrial manufacturers and construction firms are not simply enjoying a rebound after last year’s disruption but also benefit from longer-term drivers of structural growth.
Equity investors have a crucial part to play in supporting this longer-term growth. Numerous companies in these sectors are looking to expand and need fresh equity to help fund this. Returning to Polypipe as an example, the company recently announced the acquisition of ADEY, a provider of filters and protection products for residential boilers. This is a growing segment of the construction market as heating technologies develop and the UK progresses towards its 2050 net zero carbon target. The acquisition was funded partly by existing debt facilities but also via a share placing.
Such placings offer equity investors the chance to inject fresh capital into companies and enable them to take advantage
of growth opportunities. This helps to support innovation and employment in the UK as well as offering investors the chance to share in future growth.
We see numerous smaller UK companies that potentially offer such opportunities, both in the industrial manufacturing and construction sectors, and beyond.
More information about the Schroder British Opportunities Trust here >
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    13 DIY Investor Magazine | Jun 2021

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