2016: Europe a cosy place to be, upgrading SGO, DG and TPK to Buy
We are more optimistic on Europe, contrarian on Emerging markets and avoid US
exposure for 2016. We see a mixed outlook with slightly higher European volumes, a
slower pace in US growth and mixed incremental trends in EMs (improving in India,
Mexico, worsening in Brazil, China). European construction, housing in particular, appear
as attractive, even if the pace of the recovery is likely to be measured. We continue to
see some downside risks for US construction growth, relative to very optimistic market
expectations. We see sector valuation already fairly full (2016 EV/EBITDA of c9x and P/E
of c17x), leaving more space for a potential de-rating than a significant incremental rerating.
We favour Saint-Gobain (upgraded to Buy from Neutral), Travis Perkins
(upgraded to Buy from Neutral), LafargeHolcim (Buy) and Kingspan (Buy). We are more
cautious on CRH (Underperform). We stay Neutral on Wolseley and upgrade
HeidelbergCement to Neutral from Underperform.