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City Site - City homes in on a rising sector

FINANCE

JANUARY is often a good month for the stock market as investors raise their hopes for the coming year. But the surge in many construction-related share prices in recent weeks has been the strongest in recent memory. Already this year, the FTSE Construction & Materials index has risen by 5 per cent.

Bid speculation has driven many of the rises. But beneath the froth, there has been a re-rating of certain companies, particularly larger hybrid contractor/ house builders. Shares in Kier Group, which have climbed by 16 per cent to 1,380p in January and Galliford Try, up 19 per cent, have been in demand as the City has recognised the quality of their contracting and services operations and sensed that if they can keep house building profits roughly stable in the current market, a low rating on their shares is not deserved.

Morgan Sindall, which jumped by 18 per cent in January has also been a benef iciary of this more positive attitude.

Its affordable housing arm should give it more resilience and its civils business, which last week won a £60 million tunnel contract for the National Grid, is busy.

Elsewhere in January, shares in Gleeson ? which has had bid talks ? rose 17 per cent and Costain climbed 12 per cent.

Meanwhile, the City remains convinced that further bid action is looming among house builders.

Last week, Wimpey's share price jumped by 7 per cent, Taylor Woodrow's by 5 per cent and Barratt's by 4 per cent.

But even in the absence of further bids, the house building newsf low is improving. Crest Nicholson last week pointed to early signs of an improving housing market, particularly in the south-east, which made it cautiously optimistic.

Despite higher incentives and build costs, the firm managed to limit the fall in its operating margins from 14.8 per cent to 13.6 per cent.

If that is as bad as its going to get, little wonder share prices have been rising.