Spending review analysis: stock market winners

City analysis of the chancellor’s Spending Review today highlighted opportunities for Balfour Beatty (LSE:BBY), Costain Group (LSE:COST) and Galliford Try Holdings (LSE:GFRD) among a long list of potential beneficiaries.

Panmure Liberum said stocks in its Business Services coverage were firmly in the winner's camp amid the government’s focus on defence, transport, nuclear energy and affordable housing.

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The broker added that much of its coverage and adjacent stocks remain cheap, including structural steel business Severfield (LSE:SFR) and the infrastructure services business Kier Group (LSE:KIE).

Severfield shares are down by a third this year after it warned in March of delays in client decision-making and said projects are progressing at slower than usual timescales.

Panmure Liberum believes that Severfield stands to benefit from greater investment in defence infrastructure and national security, as well as exposure to energy transition work

It highlighted an increased volume of opportunities in areas such as onshore and offshore wind, solar, carbon capture, hydrogen production and new nuclear, including Sizewell C, small nuclear reactors and fusion energy.

Sizewell C is a particularly large opportunity for Balfour Beatty, which is also positively exposed to defence spending due to its previous work in high-security environments. Balfour is Hold rated in Panmure Liberum’s coverage.

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Kier shares have advanced to a six-year high, but the broker sees further upside to 250p, boosted by the company’s favourable positions in a number of key areas of the Spending Review including defence infrastructure, Sizewell C and transport projects.

Costain, which is Buy rated with a price target of 150p, is seen as a key beneficiary after transport was given the third-highest capital spending boost in the review.

In separate analysis, counterparts at Cavendish pointed out that the government reiterated its support for Heathrow's expansion and creation of a third runway. It believes Costain is well-positioned to expand its involvement given a strong relationship with Heathrow and ongoing work on the Terminal 2 baggage system.

Cavendish also highlighted Springfield Properties Ordinary Shares (LSE:SPR), the low-cost housebuilder MJ Gleeson (LSE:GLE) and construction firm Galliford Try among the beneficiaries of the Spending Review.

The City firm said £39 billion investment in affordable housing over the next 10 years was a significant step towards addressing the funding constraints for housing associations and local authorities.

Using a funding assumption of £80,000 per home, Cavendish said the £39 billion equates to 487,500 homes over 10 years or an average of 48,750 homes per year.

It said: “We retain our expectation that the main goal of 1.5 million houses built over the current Parliament’s tenure seems unachievable, but this represents a significant step towards achieving about 300,000 a year completions by the end of the term, from the current run-rate of 200,000.

“What housebuilders need now is to see the detail on how this investment will be disbursed, whether centrally through Homes England, as in previous cycles, or spread among local authorities.”

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Scotland-focused Springfield has about 20% of revenue generated from affordable housing.

In addition, the government’s focus on energy and infrastructure should be beneficial for the company’s Northern Scotland strategy, where it is already pivoting to build houses to support £3 billion of planned investment and the creation of 15,000 jobs.

Cavendish said Springfield continues to trade on an attractive forward multiple, with the valuation gap not reflecting the opportunities or its recent land sales.

It added that partnerships will also be key to MJ Gleeson meeting its 3,000 per year medium-term target, which compared with 1,772 new homes at the end of 2024.

Affordable housing is also central to the 2030 strategy of Galliford Try, with the increased spend having the potential to unlock growth in this higher-margin area.

The company is also strong in several other areas of the Spending Review, with Defence its second-largest division by order book while it is growing across Education and Healthcare.

Cavendish points out that most of the funding measures for large infrastructure projects across a diverse range of sectors were already in the public domain prior to the review. An upcoming 10-year infrastructure plan will confirm the government’s priorities.

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It adds that Speedy Hire (LSE:SDY) offers investors the ability to benefit from an increase in activity from any of the sub-sectors, hedging end market delivery risk to some degree.

Cavendish said: “Whether it be infrastructure, housing, large or small-scale construction or repair and maintenance, Speedy's equipment is needed as an essential part of the building or service delivery process.

“With the shares at a discount to net tangible assets the shares do not yet reflect the group’s current value let alone any future growth that can be generated supported by the ambitions of the spending review.”