Markets warning

The outperformance of the stock market by building and construction company shares over the past few months hides a gloomier picture, City analysts warned this week.

Despite shares in this sector increasing in value by nearly 28% against the FTSE all share index rise of close to 13%, they are still far below their level in the early nineties.

Stockbrokers agree that the surge in share price has been due to optimism in the housing market, but with activity slowing in this sector, the outlook for share prices is uncertain.

Kevin Cammack, housing analyst with Merrill Lynch, said: "The recovery is being driven by housing and the market is taking the view that prices will recover as well as volume. But share prices are still much lower than five years ago: in relative terms Amec shares at 110p are only half of what they were in 1992. The fact that share prices have done so well in the last year is merely reflecting how badly they were doing a year ago."

Cammack thinks that with activity slowing again in housebuilding, share prices might even start falling again.

But Mike Foster, analayst with Greig Middleton, believes that prices might continue upward for a while yet. He said: "Margins have stopped coming down and a lot of contractors think that construction has stopped getting worse and the situation is certainly better than a year ago when it was dire."

But within the share performance, some contractors are doing markedly better than others. Amey has outperformed the index by 150 per cent, Barratt's by 60 per cent and Berkeley Group by 70 per cent.

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