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4 stocks that will get a boost from higher house starts in 2014

In the first quarter of 2014 Brickworks’ (ASX: BKW) sales and profit margins have improved from the upturn in detached housing, aided by the performance of its Austral Bricks and Masonry divisions. Cost controls were said to have been the result of better plant efficiency, which came with increased production volumes.

Its Bristle Roofing and Austral Precast divisions were said to be steady in earnings, although both experienced sales volume weakness. The Auswest Timbers division was in line with the previous corresponding period, yet in the previous year it was affected by a fire that disrupted work.

At its AGM, the company told of the expected growth in detached housing, showing forecasts of the Housing Industry Association and BIS Shrapnel until 2017. Averaging the forecasts of each, it projected a potential 15% increase in total detached housing over the next four years. Total dwelling starts were forecast to be flat over this period.

It noted that the higher 105,000-110,000 forecasted house starts were still lower than previous peak levels of around 120,000 experienced in 2009 and 2003.

The 2014 outlook is for improved earnings in building materials, yet its property earnings are expected to be marginally lower from a smaller amount from land sales. Its investments are projected to deliver strong performance over the long-term.

Other building materials companies are looking to have stronger business in this year also.

CSR (ASX: CSR) managing director Rob Sindel sees higher volumes of new homes coming, saying,” “The early indicators — finance approvals and land sales — you’re seeing those strengthen.” CSR has already seen a doubling of profits in the half year up to 30 September, up to $41.5 million, and is forecasting a full-year net profit before abnormals of about $70 million, up from $44.1 achieved in previous period.

Boral (ASX: BLD) is continuing its program of cost cutting and re-focusing on core business to improve performance until stronger levels of housing construction are achieved. It recently entered a joint venture with US Gypsum to improve sales in its US and Asia markets.

Fletcher Building (ASX: FBU) recently has made a purchase of a laminates manufacturer in India, following its view that the Indian materials market is ripe for expansion. In addition, its formica division has just opened a new plant in China to meet higher demands for laminate, spurred on by rapid economic development there.

Foolish takeaway

The movement is upward for housing materials, though its acceleration is still uncertain. A general economic recovery will encourage more construction, but at the same as the mining boom is coming off the boil, general market growth may still be subdued.

It has to build up its own momentum, so investors still have time to carefully look over and consider which companies have the best growth prospects.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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