Jefferies Picks Kier and Morgan Sindall as Top UK Builders

Jefferies on 22 April 2026 identified Kier and Morgan Sindall as its preferred exposure to the UK construction sector, flagging what the bank described as attractive risk-reward versus consensus (Investing.com, 22 Apr 2026). The call comes as UK construction activity remains weak on headline measures: the Office for National Statistics reported construction output down 3.2% year-on-year in March 2026 (ONS, Apr 2026). Against that backdrop, the FTSE 350 Construction & Materials index has outperformed the broader FTSE 100 year-to-date, climbing roughly 8% versus the FTSE 100's 2% return through 22 April 2026 (LSEG data). Jefferies' note emphasises relative balance-sheet strength and contract mix as differentiators, arguing that select contractors can generate margin expansion as commodity inflation normalises. This article places Jefferies' recommendations in macro and micro context, quantifies the data points driving the call, and assesses near-term market implications for investors and sector participants.

Context

The UK construction sector has been grappling with weak volumes and elevated input costs since late 2023; however, cyclical signs are uneven across subsegments. Public-sector infrastructure work has held steadier than private housebuilding, where mortgage rates and affordability constraints have depressed activity. Official statistics show new housing approvals and starts contracted in Q1 2026 — Department for Levelling Up, Housing & Communities data indicate a roughly 12% year-on-year decline in housing starts in Q1 2026 (DLUHC, Apr 2026). That divergence helps frame why Jefferies is selective: contractors with higher exposure to infrastructure and commercial refurbishment are viewed as having more visible pipelines.

At the same time, commodity inflation has moderated from its peaks in 2022–23. Jefferies cites softer steel and bitumen pricing as a tailwind that should permit normalization of tender margins through 2026. Market pricing supports some of this: UK steel rebar futures fell approximately 15% from June 2023 highs to April 2026 levels (LME/LSEG, Apr 2026). Nevertheless, client payment cycles and work-in-progress accounting remain material risk factors specific to balance-sheet management for mid-sized contractors.

Jefferies’ selections reflect a mix of balance-sheet resilience and earnings leverage. Kier and Morgan Sindall are identified for different reasons: Kier for scale and diversified contract portfolio, Morgan Sindall for margin profile and growth in their support services businesses. That heterogeneity underlines a core theme — not all sector exposure is equal in the current operating environment — and underpins Jefferies' bottom-up preference rather than a blanket sector overweight.

Data Deep Dive

Jefferies' published note (Investing.com summary, 22 Apr 2026) singles out Kier and Morgan Sindall as top picks; specific company-level metrics referenced in broader market commentary include consensus 2026E EBITDA multiples for Kier near 6x and Morgan Sindall near 7.5x as of April 2026 (LSEG consensus data). Relative to long-run averages, these multiples imply valuation recovery potential if earnings stabilize: Kier's multiple is approximately 20% below its five-year pre-pandemic mean, while Morgan Sindall is roughly in line with its historical median.

On cash flow and leverage, market filings show Kier reported net debt of £320m at FY2025 year-end (Kier FY2025 results), translating to a net-debt/EBITDA of about 1.8x on trailing twelve-month EBITDA — a materially different profile from smaller peers where leverage exceeded 3x. Morgan Sindall's FY2025 net cash position of £45m (Morgan Sindall FY2025 results) gives it greater capital flexibility for opportunistic M&A or buybacks, according to broker notes. These balance-sheet contrasts are central to Jefferies' argument: firms with lower leverage are better positioned to capture volume or pricing upticks without emergency refinancing risk.

Macro indicators provide additional texture. The ONS recorded a 3.2% year-on-year decline in construction output in March 2026 and a month-on-month contraction of 0.7% (ONS, Apr 2026 release). Meanwhile, infrastructure pipeline commitments remain sizeable: the UK National Infrastructure and Construction Pipeline lists over £600bn in planned projects through 2030, though multiyear funding and delivery schedules create lumpy revenue recognition for contractors (UK Government Infrastructure Pipeline, 2025 update). The juxtaposition of weak near-term volumes versus long-dated project bookings complicates short-term earnings visibility but preserves a structural opportunity set for contractors with secured frameworks.

Sector Implications

Jefferies' call is likely to reallocate attention within the buy-side to mid-cap UK contractors that combine secured public-sector frameworks with selective private-sector exposure. If investors adopt the bank's view, capital could rotate from cyclical housebuilders — many of which reported declines in reservations and starts in Q1 2026 — into contractors perceived as better positioned for margin recovery. Such a rotation would echo year-to-date relative performance where the FTSE Construction & Materials index has outperformed by roughly 6 percentage points through 22 April 2026 (LSEG).

The recommendations also put management teams under a microscope on execution metrics: order book conversion rates, gross margin on new tenders, and working capital management will be re-assessed by investors. For example, Jefferies points to margin-on-contract improvement potential of 100–150bps for selected contractors if steel and logistics costs remain stable into H2 2026. Contractual terms such as price escalation clauses will be a differentiator; companies with more robust pass-through provisions are likely to protect margins better than those with fixed-price legacy contracts.

Finally, capital allocation may shift. Firms with net cash or modest leverage (e.g., Morgan Sindall on a reported net cash basis at FY2025) are in a position to pursue bolt-on acquisitions, which could be accretive in consolidating supply chains and adding complementary services. Conversely, companies with stretched balance sheets may use any rally as an exit window, increasing M&A opportunities for stronger balance-sheet players.

Risk Assessment

Notwithstanding Jefferies' constructive tilt, material risks remain. The most immediate is macro demand: a sharper-than-expected slowdown in consumer spending or a UK recession scenario would depress private sector project starts further and pressure revenue visibility. Given that housing starts fell c.12% YoY in Q1 2026 (DLUHC), a protracted housing downturn would erode one of the larger end-markets for contractors.

Contract execution and payment risk is a second-order but tangible hazard. Several mid-cap contractors have previously reported elongated debtor timings and disputed claims which can crystallise into working capital stress in an earnings downturn. If input prices reaccelerate — for example, if global steel markets spike due to geopolitical supply shocks — margin recovery assumptions embedded in Jefferies' thesis would be challenged.

Valuation and sentiment are additional considerations. The implied upside in company-specific forecasts is contingent on earnings normalisation; should macro data surprise to the downside, crowded positions into the selected names could reverse quickly. Liquidity for smaller UK construction stocks can be thin, amplifying moves on catalysts such as quarterly results or large contract awards/losses.

Fazen Markets Perspective

Fazen Markets interprets Jefferies' recommendations as a tactical allocation within a structurally mixed sector rather than a blanket endorsement of UK construction. Our contrarian view is that market catalysts over the next 6–12 months will be dominated less by headline construction output and more by contract re-pricing dynamics and the timing of public-sector draws. Specifically, we see a scenario where modest public spending acceleration — driven by committed infrastructure projects totaling over £600bn through 2030 (UK Infrastructure Pipeline, 2025) — could support selective margin rehypothecation for firms that successfully reprice legacy contracts or win higher-margin frameworks.

We also flag that valuation recovery is likely to be asymmetric. Firms with demonstrable cash generation and lower working capital intensity should see a more durable re-rate, while names reliant on high-turnover residential work will remain sensitive to mortgage rate volatility. Investors should therefore distinguish between flow-driven earnings profiles and those offering annuity-like revenues from long-term frameworks. For institutional investors, active position sizing and a focus on liquidity will be critical if pursuing Jefferies-style exposure.

Bottom Line

Jefferies' naming of Kier and Morgan Sindall as top UK construction picks highlights balance-sheet strength and margin leverage as key selection criteria in a sector where output is down 3.2% YoY (ONS, Mar 2026). The recommendation is tactical, contingent on stabilising input costs and successful contract re-pricing across 2026.

Disclaimer: This article is for informational purposes only and does not constitute investment advice.

Links and references

• Jefferies research note coverage as summarised on Investing.com, 22 Apr 2026: https://www.investing.com/news/stock-market-news/jefferies-names-top-picks-in-uk-construction-sector-93CH-4629469
• Office for National Statistics, Construction Output, Mar 2026 (ONS, Apr 2026)
• UK Government National Infrastructure and Construction Pipeline, 2025 update
• Department for Levelling Up, Housing & Communities, Housing Starts and Approvals, Q1 2026
• Fazen Markets sector portal: topic
• For related sector tracking and tools: topic