The election effect

The electorate at large shrugged its shoulders and got on with business as usual when the general election ended with a reduced Labour majority.

But the construction industry took the result with a measure of relief: not only did the confirmed Labour third term signal the green light for the industry’s planned public sector work, but share prices recovered after one of the worst periods in 2005 during the pre-election week.

The share price rise was only modest, with construction and building material shares overall up less than 1% to 3244. Nevertheless, it marked a respite from the falls.

The star performer last week was Redrow. Shares in the housebuilder rose 5.6% to 362p, as the company continued to be rated highly by the City. It outperformed its peers in the housing sector as analysts at UBS upgraded the stock.

Bellway was also one of the strongest performing housebuilders, up 2.1% to 780p. Most of the other housebuilders had modest rises.

The only significant fall in the sector was Crest Nicholson. Its share price dropped 2.4% to 380p, after Heron International announced that it was not able to make an offer for the company in time for the Wednesday deadline set by the takeover panel. Analysts had predicted the share price drop.

Although Crest’s board was no doubt delighted with the outcome, Gerald Ronson, who runs Heron, made an ominous statement that suggested that even though he had conceded defeat in the battle, the war was not yet over. Even if Ronson does not make a bid after a six-month exclusion period is over, Heron’s 23.4% stake means that the company is in a strong position to stand in the way of any board proposals.

The worst performer in the construction sector was Mowlem.

Its share price, which has held up since it announced a profit warning in February, dropped 3.4% to 184.5p. Despite big PFI wins in recent weeks, it could not stave off speculation that it was set to lose its rail renewal contract on a stretch of the West Coast Main Line. Network Rail this week confirmed that it would not consider Mowlem for renewal projects because of “substandard” work.

Last week, the All-Share Index outperformed construction shares, moving up 2.1% to 2448.

Angela Monaghan is business editor