Flood clean-up promises silver lining for UK construction firms

* Govt promises more flood defence spending after storms

* Fund managers tip engineering and building firms

* Upside seen for likes of Kier, Renew, Polypipe

By Kit Rees

LONDON, Jan 10 (Reuters) - Britain's wettest December in acentury could herald brighter prospects for UK engineering andinfrastructure stocks this year as companies bid for contractsto repair storm damage and boost the nation's flood defences.

Floods across northern England and Scotland have damagedthousands of homes and businesses, with analysts at U.S. bankCitigroup and brokerage Canaccord estimating total economiclosses at more than 3 billion pounds ($4.4 billion).

While insurance stocks such as RSA and Aviva have suffered, down 7.3 percent and 6.8 percent respectivelysince Nov. 30, fund managers and analysts see potential upsidefor the likes of engineering firm Kier Group, whichcarries out road repairs, and Renew Holdings, whosesubsidiary Amco provides services to track maintenance companyNetwork Rail.

Pipe manufacturer Polypipe and paving companyMarshalls are also likely to be in the running forcontracts from local authorities, according to investors withholdings in the sector.

Even retailers such as DFS Furniture and Dunelm are tipped to benefit from the refurbishment work.

The impact on the stocks has so far been mixed: since Nov.30, both Polypipe and Kier are down around 4 percent, althoughoutperforming the broader FTSE All-Share index, whichhas lost 6.4 percent in the same period. Marshalls is up 0.6percent and Renew has rallied 6.6 percent.

The full economic implications of the floods will takelonger to unfold. Visiting the inundated city of York on Dec.28, Prime Minister David Cameron said the government was alreadycommitted to spending 2.3 billion pounds ($3.4 billion) on flooddefences over the next six years, and would consider doing more.

Days later, he promised a package of more than 40 millionpounds.

"If there is a policy move to spend a lot more on flooddefences, that could be good for some of the infrastructureplayers," said Eric Moore, manager of the Miton Income Fund, whoholds shares in Kier.

The UK housebuilding sector, which includes stocks such asblue-chip Taylor Wimpey, was one of the best-performingareas of the market in 2015, with the Thomson Reuters UKHomebuilding Index gaining around 40 percent. Post-flood rebuilding could give them a second wind in 2016, asrepair work is expected to boost construction activity in thefirst quarter.

"On balance, the (economic) downsides in Q4 will be broadlyneutralised by the upsides in Q1," said Kallum Pickering, seniorUK economist at Berenberg.

The UK Construction Purchasing Managers' Index showed growthin the construction industry gained momentum in December, risingfrom November's seven-month low. Civil engineering, however,contracted for the first time since April.

"I would expect construction stocks to continue to do wellwith the prospect of further work to come from the rebuilding ofthose areas affected by the flooding," said Derek Mitchell, UKOpportunities fund manager at Royal London, whose portfolioincludes Kier and engineering contractor Keller Group.

Apart from the planned flood-related spending, investors are encouraged by other government building schemes, such as the100,000 discounted homes promised during Cameron's electioncampaign last year.

"It's more likely that some smaller, unlisted and unheard-ofbuilders will be brought in to actually do the work ... supportservices for construction we see as having quite a broad-basedbenefit to it," said Jonathan Roy, advisory investment managerat Charles Hanover Investments.

About 80 billion pounds' worth of major infrastructureprojects are planned up to 2020, analysts said, some of whichare still up for grabs.

Besides the flood repair work, they pointed to schemes likethe Thames Tideway Tunnel plan, London's new "super-sewer", andprojects for new nuclear reactors and high-speed rail links.

Royal London's Mitchell sees potential gains for manyconstruction stocks: "I think they can see the sunny uplands and(there is) enough work for them now to do well."($1 = 0.6889 pounds) (Reporting by Kit Rees; Editing by Sudip Kar-Gupta and MarkTrevelyan)