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Contractors see order books grow

18 Nov 13 The total value of UK construction orders books reached a new high during the summer, according to an analysis by a firm of accountants.

The latest construction order book index from accountants Grant Thornton hit a record high of £59.4bn during August 2013, a 6.4% increase on the position 12 months ago and a 4.1% increase on the £57.06bn recorded in December 2012.

Balfour Beatty’s restatement of its order book from £16bn in July to £13.9bn in August to account for its discontinued facilities management and rail businesses meant that by the end of September the index had fallen to £57.3bn, just 0.4% above its December 2012 level.

 Grant Thornton head of construction Phil Westerman said: "For 2013 so far, the order books of our index's constituent companies have remained stable with modest increases from most. Over this same period the FTSE UK Construction & Materials index rose 20% and we can see that construction companies continue to see share price rises disproportionate to their order book outlook.

"The struggles of the construction industry have been well documented but positive messages are starting to emerge. In the first half of 2013 we saw £1.9 billion added to the order book index suggesting that there were more opportunities on the market.

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"Our two best performers by share price both have interests in the London fit-out market, which is benefitting from a rise in market confidence and undersupply of new space: ISG and Interserve have shown modest order book rises in 2013 yet their share price has risen 67% and 44%, respectively. Interserve has recently bolstered its London fit-out presence with the acquisition of Paragon Management alongside other fit out services in the Middle East, whilst ISG has added to its strong UK position with acquisitions in the Brazilian and German fit-out markets.

"Overall companies have been adjusting their strategies to cope with the challenging and changing environment. Costain Group's 20% order book rise stems from national infrastructure work and a focus on oil and gas; Balfour Beatty is seeing a strong US performance and has now restructured to position its order book so 67% is from economic infrastructure.

“The purchase of May Gurney added £1.7bn to Kier Group's order book and has already helped position the group more beneficially in utilities and transport infrastructure. And although Mears Group's order book remains flat in 2013 so far, and its Morrison acquisition is just breaking even, its share price rise suggests confidence for the future."

 The construction order book index is pointing to an increased flow of UK activity in 2014 with the opportunity of major infrastructure projects such as The Highways Agency's £5bn framework and the water industry's AMP6 becoming more abundant, he said.

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