Despite Liam Carrolls stake-building at McInerney, growth projections at target acquisitions are too uncertain in the short-term to warrant board approval, by John Coolican, Director, CFM Capital.

The volatility and confusion that we have seen in international markets over the last six to nine months has continued to rock investor confidence not just in the Irish construction sector but much wider – the majority of players are sitting firmly on the sidelines choosing to wait and watch rather than participate in either investments or trade transactions.

In the case of professional investors, many with highly liquid positions are choosing to remain liquid despite the widely held view that there is significantly greater value in the market today compared to six or 12 months ago and that over the two to three year view that the risks on the downside are relatively modest.

With Irish financial stocks currently down 40-50% and the construction share prices mostly down 50-60% from their 12-month highs it is sometimes difficult to share that view. The more modest CRH share price decline is largely due to its limited exposure to the Irish economy (relative to this group), this reflects a broader international trend in construction stocks.

These sharp and sustained share price declines over several quarters both here, in the UK and further afield are clear indicators that we are in a period of substantial readjustment.

So how long will this last? Stock market investors will be guessing at both the timing and the shape of the recovery but for now with many blue-chip construction stocks remaining at five year lows it looks as if all bets are off the table.

If we look back six months, the pessimistic projected growth figures issued for 2007 have been realised and 2008 projections have been revised to a relatively modest, circa 2.5% (GDP growth) when compared to 5-6% range for the last three years.

This deceleration is naturally having an effect on both private and public
companies alike, albeit in different ways. In the case of public companies the sharp decline in share prices has resulted in lower valuations.

This has had several negative consequences. Firstly, a greater than normal conservatism is likely to creep into the company forecasts issued to the financial markets as the punishment resulting from failing to achieve projections can be greater in the current climate.

Secondly, funding for internal projects will have to meet tighter investment return criteria than may have been the case 12 months ago and some expansion projects in the approval process will fall out of the process due to the more strict criteria being applied.

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