Construction companies on the Stock Exchange are holding out despite 50% declines

25 nov 2009 Autor: Rares Jitianu

Listed companies operating in the field of constructions, such as Comnord Bucuresti (COSC), Concefa Sibiu (COFI) or Cominco Bucuresti (COBS) registered turnover slumps of between 40 and 50%, but managed to stay in the black in the first nine months of this year.
"The constructions field is characterised by a higher inflexibility in terms of its response to the overall economy as constructions are characterised by a higher duration of production flows. After the onset of the crisis, the sector took a while to feel it, compared with the manufacturing industry, for instance," says Andrei Radulescu, an analyst with Target Capital brokerage.
As a rule, short-term plunges in turnover can bring losses, as companies need to adjust expenses in a very short period of time.
Profits generated by companies operating in the field of constructions have plummeted this year, by as much as 90% from the first nine months of 2008, but the situation is better than in the iron and steel industry or the chemical one, where most major companies slipped into the red.
Analysts believe the progression of the constructions sector this year was triggered by the old unfinished projects. "I believe the progression of the constructions sector in the first months of this year was mainly decided by the old projects and the few public investments operated this year. I don't believe one can speak of new construction projects this year, especially in the private sector," says Andrei Radulescu, an analyst with Target Capital.
He says civil engineering projects were most visible this year, being more resilient against the economic downturn.
Andreea Gheorghe, an analyst with Intercapital Invest, believes that "construction companies that made profit this year were those that have a structure of expenditures with lower fixed costs".
Analysts believe the sector will stagnate next year against 2009, though it offers a high potential on the long term. They consider the sector may rebound in 2011 at the earliest, depending on global economy trend.