A new report by Davy Stockbrokers examines the recent performance and future prospects for the Irish quoted companies involved in the sector, digging up some encouraging information for potential investors.

Construction stocks have performed strongly over recent years, and the Davy report notes that Irish companies have been out of the blocks quickly this year.

Shares in the three largest construction-related companies quoted on the Irish Stock Exchange - CRH, Grafton Group and Kingspan - have increased by an average of just over 16% since January.

Dublin house-builder McInerney, meanwhile, has gained 14.2% over the year-todate. McInerney was one of the best performers on the Iseq last year, up by a massive 75% on top of the 40% gain posted in 2004. Fellow builder, Abbey, has lagged the sector this year, adding just 1.5%. But Davy predicts good times ahead for both companies, given recent signs that the UK construction market may be on the way back up.

Growth in the UK residential construction market, to which Abbey is heavily exposed, has been relatively slow. House prices have remained flat or fallen in many areas, and the number of housing completions has levelled off. The larger UK builders, including Taylor Woodrow and Wimpey, saw their earnings decline by an average of 20% over the past year.

Most of the UK builders are seeing a dramatic improvement in conditions this year. Bovis Homes, for instance, took reservations on new houses equivalent to more than half its entire 2005 sales over the first three months of the year. Its competitor, Persimmon, recently released a trading statement announcing that it has already achieved 40% of its full-year sales target.

This newsflow bodes well for Abbey and for McInerney, which has been steadily increasing its presence in the UK over recent years. The Davy report's authors, Joe Burnell and Florence O'Donoghue, underline the growing importance of the UK market to McInerney, which has gone from building just over 250 housing units in the UK in 2002 to over 650 completions in 2005.

"The group has ambitions to increase this to 1,200 to 1,400 by 2007/2008, " Davy notes. "That in itself will enable the group to grow earnings by over 10% per annum."

An upswing in the UK is also good news for Kingspan.

The Cavan-headquartered high-spec insulation specialist had the added bonus last week of a change in UK regulations mandating builders to focus on environmentally friendly building materials.

That should play right into Kingspan's hands given its strong investment in research and development of such materials and its track record of selling them into the residential construction market in Ireland.

Should the house-building market in the UK improve, as has been predicted, Grafton Group also stands to benefit. The DIY and building materials group, which owns both the Atlantic Homecare and Woodies chains in Ireland, has been increasing its presence in Britain.

Ireland was the main driver of Grafton's strong 2005 results, with the company's earnings in the UK growing by a sluggish 3%. But Burnell and O'Donoghue point out that Grafton is wellplaced to take advantage of any upswing in UK construction activity, even as the company continues to benefit from the buoyancy of the Irish home-building and DIY markets.

In the midst of a broadly positive year for Irish construction stocks it is ironic that CRH, the one true global player, was one of the few to disappoint. All the same, as the Davy report points out, it is a measure of the company's consistency that a 15% rise in earnings was considered disappointing.

That minor aberration, by CRH's standards, will be forgotten if the anticipated rise in construction activity in the US materialises. CRH generates around half its profit in the US, and the American construction industry is looking forward to a bumper year.

Two of the CRH's biggest competitors in the US concrete and aggregates business, Vulcan and Martin Marietta, are predicting growth of up to 36% in 2006.

Shareholders might be interested to note that CRH trades at a substantial discount to those American companies. At 28.80, the company is trading at 15.4 times earnings, compared with multiples of 26 times for both US firms. That relatively low rating reflects CRH's exposure to a European construction market that has been in the doldrums but is starting to show signs of a reawakening partly prompted by early shoots of economic recovery in Germany.