Construction Outlook: Not all doom and gloom for building

August 4, 2022

Recently there has been good cashflow and payment profiles despite all the issues and bad press the construction sector has seen recently.

Our regular data series, which we provide to the New Zealand Hardware Journal, assesses the level of credit risk posed by the four business sectors most closely associated with the Construction & Hardware industry:

  • Residential Construction
  • Commercial Construction
  • Hardware, Building & Garden Supplies Retailing
  • Core Retailing

Below is the New Zealand Hardware Journal’s commentary:

In our last Statswatch post (27 June – find it here), the May month’s data continued to show improvement in the risk profiles of our four business sectors, although CreditWorks’ Alan Johnston again underlined the need for vigilance when it comes to risk management.

June’s risk data indicates more of the same and supports CreditWorks’ findings around payment profiles, which Alan describes as “quite strong.”

He continues: “Despite all the negative forecasts and current issues facing the commercial sector in general, and construction in particular, we are still seeing good cashflow and payment profiles for the key industries we cover.

“Feedback on collection activity with most of our suppliers indicates good payment profiles,” he says.

In response to negative forecasts for the medium to long-term future of the building industry, Alan Johnston qualifies; “While there is just cause to be concerned with rising material and living costs, labour shortages, and product supply, we are still seeing record consent figures and activity which is up on the same time last year.”

To the positive, although consent figures don’t necessarily equate to builds, positive signs for the construction market include action around plasterboard supply, the re-opening of our borders (which may help with labour supply), and reports of solid forward work for the next 9-12 months.

Current builds are however taking longer to complete and, while sales were down approximately 8% in June compared with May, the extreme weather issues being experienced around the country will account for some of this.

Alan Johnston concludes: “It’s not all doom and gloom for the commercial sectors, although that word – vigilance – continues to need to be applied.

“We are still seeing liquidations across the board however our investigations tell us that: (a) many of these are solvent liquidations, with no need for liquidator intervention; and (b) the most recent incidences (eg Compass Homes) relate to problems going back some time.

“So, while the industry, in general, is still trucking along quite well in most instances, it is important to be able to identify the good from the bad, and regular monitoring is recommended.”

 


Now see the charts below for a visual explanation of the last three months’ risk profiles across our four chosen sectors.

The left axis indicates the % of a sector that is at risk. The bottom axis shows the % likelihood of failure over the next 18 months.

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