The CSR Limited (ASX: CSR) share price surged on Tuesday as its seen to be one of the best placed to ride the ongoing construction boom.
The latest building approvals data released by the Australian Bureau of Statistics is firing up the sector. But the focus is clearly on CSR.
The CSR share price jumped 4.9% to $6.04 today. In contrast, the Boral Limited (ASX: BLD) share price added 1.3% to $6.91, Adbri Ltd (ASX: ABC) share price gained 4% to $3.36 and GWA Group Ltd (ASX: GWA) share price increased 3.5% to $2.98.
Strong approvals data supports building materials sector
Building approvals was strong even without the benefit of the government’s Home Builder stimulus. This shows the underlying strength in the sector, according to Citigroup.
“We maintain a constructive outlook with low rates and strong established house price growth to underpin our housing starts forecast of +18% growth in the June 2021 quarter,” said Citi.
“The pace of approvals has been running faster than this, presenting upside to our forecasts.”
CSR share price better placed to boom
The broker believes we are still in the early stage of the earnings upgrade cycle. This means the CSR share price is particularly well positioned to rally further and Citi is recommending investors buy the shares.
“We forecast housing starts to grow by +18% to 49,717 for the June 2021 quarter, which brings starts to 201.8k in FY21e,” said Citi.
“Should the current run-rate in approvals be maintained, this could present upside risks to our forecasts. CSR is best exposed to domestic housing, which drives ~80% of Building Product sales.”
Renos taking off
Households are also spending big on renovations. I didn’t need the ABS to tell me that as I am sandwich between neighbours who are making major modifications to their homes while I struggle to work from home in lockdown Melbourne.
Nonetheless, the data is impressive. The value of renovation activity approved increased 57% in April, and that comes off the 52% uplift in March.
I am sure Wesfarmers Ltd (ASX: WES) shareholders would be happy about that given the conglomerate owns Bunnings.
Part of the market that isn’t doing as well
However, commercial building activity remains volatile. This is one reason why Citi doesn’t think investors should buy the GWA share price.
“The value of commercial work approved increased by +6% in April 2021, down from the +50% growth seen in November 2020,” explained Citi.
“Given long lead times in non-residential work, evidence of a more sustained turnaround is required before we become more positive on GWA (Neutral).
“For GWA, commercial and multi-res drives ~40% of overall sales and likely a larger proportion of earnings.”