A step in the right direction

The results season is drawing to a close with a sharp lift in profits raising construction's self-confidence to the highest point since the late 80s.

The earnings of construction groups are 25-50 per cent higher, giving rise to something of a party atmosphere. However, there are no unequivocal signs that the industry is yet ready for the rigours of the morning after.

Hopefully the hangover will not materialise, but if it does, there is little consolidation around to ease the pain. Mansell's reverse takeover of Lovell is one rare example. If Laing were to buy Bovis the picture might look a little different, but with the Laing board vehemently denying the possibility, at present it looks like P&O is flying a kite.

Generally, acquisitions have been piecemeal and small in scale. Kier and Morgan Sindall, for example, have been growing by hoovering up local contracting names to quietly boost their regional strength.

The industry is still too reliant on volume, and should orders fall there are still likely to be too many companies competing for too little work.

While takeovers and mergers may be in short supply, companies are making moves to render themselves more recession-proof. The likes of Tilbury are buying into the FM market to get longer-term earnings that will insulate them against the vicissitudes of the market. Amey has sold its housing business to further focus on FM. And Laing is moving away from traditional construction to fee-earning management work.

Promising though they are, these changes are only the first step towards real specialisation. They are neither bold nor decisive. There has been nothing to rival the Tarmac/Wimpey asset swap, or Alfred McAlpine's brave decision to drop cetain building operations.

Although the industry is on the way to a more viable future, it has not yet arrived.