Australian Construction and Materials Sector at a Pivotal Moment: Public Spending Up, Private Activity Slowing
The Australian construction and materials sector is at an interesting crossroads. On one side, public investment is booming; on the other, private building activity is stumbling.
Understanding this split is key to making sense of why some companies are thriving while others are struggling.
Overall, the Australian construction market is projected to grow at a Compound Annual Growth Rate (CAGR) of 4.31% from 2025 to 2030, but the drivers behind that growth are far from uniform.
Public infrastructure and energy spending is the clear engine of strength. Governments at both federal and state levels have committed record funding for major transport, utilities, and defence projects.
Deloitte estimates the total value of investment projects under construction in Australia rose by 13.6% to $473.8 billion in the year to March 2025, with major transport initiatives in New South Wales, Queensland, and Victoria leading the way. That’s good news for contractors and material suppliers who are focused on this segment, it provides a long-term, reliable order book.
Source: Investor Pulse, Research (2025)
The private side of the sector, however, is less rosy.
High interest rates, rising costs for materials like steel and concrete, and builder administrations have all dampened private residential and commercial investment. Total building activity fell by 9% in fiscal year 2024, with little improvement in FY25. Companies that rely heavily on private work face a more challenging environment, and the contrast between the public and private sides couldn’t be starker.
Government Investment Acts as a Counterweight: Multi-Decade Infrastructure Plans Offer Stability
Where private activity is faltering, government spending is holding steady, and in some ways, it’s even more strategic than a simple economic stimulus.
The Australian Government has a 10-year infrastructure pipeline exceeding $120 billion, with the 2024–25 Budget allocating $16.5 billion for projects spanning transport, housing, energy, and water.
What makes this pipeline particularly significant is its alignment with national goals like “sustainable liveability” and net-zero emissions by 2050.
Infrastructure Australia is prioritising investments that support decarbonisation and the circular economy. For firms capable of handling complex, high value projects, this creates a multi-decade engine of demand, a rare level of predictability in an otherwise volatile sector.
Fragmented Supply Chains and Subcontractor Failures Are a Risk
Despite the optimism around large contractors, the wider supply chain tells a different story. Smaller subcontractors and suppliers continue to face financial stress. In 2024 alone, 3,000 construction sector insolvencies were recorded. That’s a reminder that the health of the sector isn’t just about the biggest players – when subcontractors fail, delays and cost overruns ripple across the entire network.
Fixed-term contracts have left smaller firms exposed to inflationary pressures. They have little room to absorb rising costs, and when they collapse, even large, well-capitalised companies feel the impact. It’s a sobering reality: the sector’s ecosystem is interconnected, and the financial fragility of one part can affect the rest.
Labour shortages are perhaps the most pressing challenge. The sector needs 90,000 more workers by the end of 2025, rising to 130,000 by 2029. Many current workers are retiring faster than replacements are entering, and younger generations often see construction as low-paid, difficult, and lacking career progression.
Modern workforce expectations make the challenge more complex. Professionals are increasingly prioritising flexibility, culture, and career development over just salary. Less than a third of civil and residential professionals have hybrid work options, and career pathways remain unclear. This means the sector can’t simply throw money at the problem; it needs a fundamental rethink of how it recruits, trains, and retains talent.
Decarbonisation and Technology Are Driving Long-Term Growth Opportunities
Looking ahead, decarbonisation and the energy transition offer a bright spot. The national net-zero commitment is creating a multi-decade pipeline of projects, largely insulated from the ups and downs of private housing and commercial construction. Companies like GenusPlus Group (ASX: GNP) and Worley (ASX: WOR) have positioned themselves as enablers of this transition, securing forward-looking, lower-risk order books.
Technology is another game-changer.
Digital solutions such as Building Information Modelling (BIM), prefabrication, and modular construction are helping firms reduce reliance on scarce on-site labour, improve efficiency, and compress project timelines. Those that embrace these tools cannot only survive the workforce crunch but also gain a significant competitive edge.
The Australian construction and materials sector is operating in two distinct worlds.
Public infrastructure and sustainability-led projects offer stability and predictability, while private sector activity, labour shortages, and supply chain vulnerabilities continue to challenge the industry.
Success will come to companies that can navigate this dual-track market, embrace operational transformation, and align strategically with long-term national priorities. For those that get it right, the growth opportunities are substantial, and the path forward is clear.
Company-Specific Investment Deep Dives
Source: DOW, weekly chart (2025)
Downer EDI has clearly shifted gears, moving away from high-risk construction and mining toward urban services across Transport, Utilities, and Facilities.
This change isn’t just cosmetic, it has strengthened the company’s positioning with a healthy backlog of government-funded contracts, including the recent $3.05 billion Australian Defence deal. Long-term contracts like these give the business solid revenue visibility and a buffer against the ups and downs of private construction, showing that Downer is now operating from a more predictable, resilient base.
The FY25 results underline just how far the company has come. Statutory NPAT jumped 81.6%, while underlying NPATA rose 33.0% to $279.4 million, and EBITA margins expanded to 4.4%, the strongest full-year margin in more than a decade. That margin expansion reflects a sharp focus on operational discipline and divesting non-core assets. Cash flow and the balance sheet also look impressive: normalized cash conversion hit 97.9%, and net debt to EBITDA fell to a healthy 0.9x.
These strong financials have given management the confidence to announce a $230 million on-market share buyback and lift dividends by 46.5% to 24.9 cents per share – clear signals of a company committed to returning value to shareholders.
Looking at the numbers, Downer’s valuation is reasonable. The forward P/E of 16.4 and an EV/EBITDA of 13.1 suggest the market is starting to price in the benefits of the transformation. Price action is supportive too, with the stock riding a bullish trend following FY25 results. Taken together, the strategic shift, strong government-backed revenue, and disciplined financial management point to a bright outlook. For investors seeking a stable growth story in the Australian services sector, Downer EDI offers a compelling long-term buy.
Source: LLC, weekly chart (2025)
Lendlease Group, a global property and infrastructure developer, runs its business across Investments, Development, and Construction, offering an end-to-end model that spans design, funding, construction, and asset management.
FY25 saw the company embark on a major strategic overhaul, including the divestment of its international construction operations to simplify the business and shore up the balance sheet. While these moves reduce some risk exposure, the broader market remains tough, and management has flagged FY26 as a “transition year,” with the strategic benefits unlikely to be felt until FY27.
The headline return to profitability in FY25, with a Net Profit After Tax of USD 225 million following a USD 1.5 billion loss in FY24, paints a rosy picture – but the reality is more nuanced. Much of this improvement came from USD 2.5 billion in capital recycling initiatives rather than underlying operations. Gearing remains elevated at 26.6%, with a target of 15% by FY26, relying heavily on future asset sales in an unpredictable market.
Core segments delivered mixed results: Investments’ Funds Under Management grew 3% to USD 48.9 billion, and Construction secured USD 5.0 billion in new work, yet the company anticipates lower earnings contributions in FY26, with a rebound unlikely until FY27.
Looking at valuation and market signals, the stock feels stretched. The reported profitability and trailing P/E of 16.5x are heavily influenced by one-off gains, masking underlying risk. Execution uncertainty and a challenging macro environment add to investor caution. The market seems sceptical: Lendlease shares have lagged the ASX 200 Index over the past 12 months, down 12% versus the index’s 12% rise, with notable drops of 6.11% and 3.06% following dividend and FY25 results updates. Against this backdrop, the combination of financial risk, operational headwinds, and weak technical momentum underpins a “Sell” view.
Seven Group Holdings (ASX: SGH)
Source: SGH, weekly chart (2025)
Seven Group Holdings (SGH) stands out as a diversified industrial and investment player, with strong positions across heavy equipment, equipment hire, and now construction materials following its full ownership of Boral. The compulsory acquisition of Boral marks a pivotal shift, transforming SGH from a passive holding company into a vertically integrated operator in construction materials. This diversification, combined with dominance in its core segments, underpins the company’s competitive edge and sets the stage for more direct control over operational performance.
The FY25 results highlighted the benefits of this expanded structure. Revenue edged up 1% to $10.7 billion, while EBIT and NPAT grew 8% and 9% to $1.5 billion and $924 million respectively. Margin discipline was evident, with EBIT margins widening by 93 basis points to 14.3%. Boral was a standout, delivering a 26% rise in EBIT to $468 million, reflecting both pricing discipline and operational efficiencies. WesTrac also contributed with a 2% EBIT uplift, bolstered by ongoing fleet renewals and robust demand in Western Australia’s resources sector.
Cash generation remains a strength. Operating cash flow jumped 49% to $1.95 billion, with over 90% EBITDA cash conversion across Industrial Services, allowing net debt-to-EBITDA to fall below 2x. Shareholders benefited too, with the fully franked dividend rising 17% to 62 cents per share. While valuation metrics such as the underlying P/E of 21.6x and a PEG of 0.79 point to solid earnings growth, the market has yet to fully digest the potential of Boral’s integration. With consistent operational performance and a clear path for growth, SGH remains a stock to watch, offering stability and measured upside.
Maas Group Holdings (ASX: MGH)
Source: MGH, weekly chart (2025)
Maas Group Holdings has steadily carved out a diversified footprint across construction materials, civil construction and hire, residential and commercial real estate, and manufacturing.
Its strategic positioning of assets, coupled with a keen eye for accretive acquisitions, has allowed the company to capitalise on industry tailwinds. The FY25 results underline this, with the Construction Materials division delivering a standout performance, growing EBITDA by 38% to $110.7 million, driven by both organic growth and contributions from recent deals. The company’s focus on infrastructure and renewable energy sectors continues to underpin strong demand for its materials.
While the Civil Construction and Hire segment faced headwinds, with EBITDA down 35% due to project delays and isolated losses, Maas’s diversified portfolio has cushioned the overall performance. Capital recycling initiatives added $107.6 million in proceeds and helped reduce leverage to 2.7x, comfortably within bank covenants.
Meanwhile, the company increased its fully franked dividend by 8% to 7.0 cents per share, reflecting a commitment to returning cash to shareholders even amid operational challenges.
Looking ahead, valuation metrics suggest room for upside. The forward P/E of 15.10, combined with a low PEG ratio of 0.57, points to attractive earnings growth potential relative to the market. Operational execution risks remain, particularly in civil construction, but the company’s strong balance sheet, diversified earnings base, and resilient cash flow position it well to benefit from ongoing sector tailwinds. On balance, we see Maas Group Holdings as a BUY, with its strategic assets and growth trajectory supporting a positive outlook.
James Hardie Industries (ASX: JHX)
Source: JHX, weekly chart (2025)
James Hardie Industries, long regarded as a global leader in fibre cement and fibre gypsum products, is facing a severe credibility and operational crisis. Its North American market dominance, once underpinned by product quality, brand recognition, and pricing power, is now in question.
The recent Q1 FY26 results revealed a 12% decline in North American sales volumes, attributed to “channel inventory destocking,” sending the stock tumbling 34% on August 20, 2025. This stark reversal directly contradicts the company’s previous assurances of structural growth, raising serious doubts about the transparency of its prior disclosures and the sustainability of its business model.
The FY25 financials, which initially seemed steady, now take on a different complexion. Net sales dipped 1% to $3.9 billion, with Adjusted EBITDA falling 4% to $1.1 billion. In the Asia Pacific region, volumes plunged 31%, partially cushioned by a 25% price increase, yet the overall narrative of resilience is undermined by the North American setback.
The revelation that prior sales may have been inflated by pushing excess product into distribution channels suggests that investor trust was misled, compounding the sense of operational fragility.
From a valuation and technical perspective, the story is equally grim. Previous price targets are now obsolete amid ongoing legal investigations and uncertainty over demand. The stock’s momentum is weak, reflecting deep investor capitulation, and trading at the lower end of its 52-week range. With fundamentals fractured and technical signals overwhelmingly bearish, James Hardie is positioned firmly as a “Sell,” and caution is strongly warranted for those holding or considering the stock.
Source: FBU, weekly chart (2025)
Fletcher Building remains a diversified player across manufacturing, retail, home building, and major construction projects, operating through six divisions spanning Building Products, Distribution, Concrete, Australia, Residential & Development, and Construction.
The company is in the midst of a multi-year strategic reset, aiming to reposition itself for long-term, sustainable performance. Its ongoing review of core operations underscores a business aware of both legacy challenges and the need to adapt to a soft market environment.
FY25 results illustrate the hurdles Fletcher Building continues to face. Revenue fell 9% to $7.0 billion, with EBIT margins slipping to 5.5% from 6.6% in FY24, while the net loss widened to $419 million, weighed down by $702 million in one-off items. Yet amid the difficult trading backdrop, there are notable positives: net debt has been cut sharply to $999 million from $1.77 billion following a capital raise and the divestment of the Australian Tradelink business.
The company has also made headway on legacy issues, including settlements on the Pūhoi to Warkworth motorway and progress on the New Zealand International Convention Centre, signalling that strategic initiatives are starting to take hold.
Valuation remains nuanced. With the trailing P/E inapplicable due to net losses, the forward P/E sits at 19.0 and EV/EBITDA at 6.6, indicating the market is allowing Fletcher time to execute its turnaround. While progress on debt reduction and operational clean-up supports potential upside, the persistent net losses and subdued market conditions temper expectations. Technical signals are steady but not compelling, with the stock trading within a relatively tight range over the past year. Taken together, the balance of strategic progress against ongoing operational and market challenges justifies a “Hold” rating, reflecting neither strong bullishness nor material downside.
Reliance Worldwide Corporation (ASX: RWC)
Source: RWC, weekly chart (2025)
Reliance Worldwide Corporation has built its name as a global leader in plumbing and heating products, particularly through its dominance in push-to-connect fittings under the SharkBite brand. Its reliance on the repair and renovation market provides a buffer against swings in new construction, offering a measure of stability.
That said, its latest performance points to a company navigating a period of slower momentum, with underlying growth showing signs of strain. The FY25 results highlight this tension.
Net sales climbed 5.5% to $1.31 billion, helped by the Holman acquisition, but profitability did not keep pace. Adjusted EBITDA grew just 1.1% to $277.7 million, while margins slipped from 22.0% to 21.1%, underscoring cost pressures and a tougher operating environment. Still, the company’s balance sheet strength stands out – operating cash flow conversion reached 97.6%, leverage fell to a conservative 1.30x, and management reaffirmed its commitment to shareholder returns through buybacks and a disciplined distribution policy.
On valuation grounds, the picture looks evenly balanced. A trailing P/E of 16.88 and a forward multiple of 16.58 suggest the stock is trading in fair territory, reflecting both the resilience of its brands and cash generation, but also the margin pressures and lack of earnings guidance that cloud the outlook. With no immediate catalyst to shift sentiment, the shares remain in a holding pattern, warranting a “Hold” rating.