08-07-2025
UK builders find support in Labour's plan to upgrade roads, railways
LONDON: British infrastructure firms stand to benefit from the Labour government's spending plans for roads, railways and energy projects, with strong order books expected to feed into improving outlooks during the upcoming earnings season.
Companies including Balfour Beatty Plc, Costain Group Plc, Morgan Sindall Group Plc and Kier Group Plc are lined up to win orders after Chancellor of the Exchequer Rachel Reeves announced £113bil (US$154bil) of funding for public infrastructure across the United Kingdom last month.
That includes £39bil to build affordable homes, £14bil for the Sizewell C nuclear project in Suffolk and £15bil for new transport infrastructure across the north and midlands.
'The general pitch will be quite healthy,' Investec Bank Plc analyst Aynsley Lammin said. He highlighted that an array of energy, water and housing contracts is already in the works, while the commitments made in Reeves' spending review will brighten the outlook and provide visibility on a steady order pipeline.
An improvement would be welcome. UK commercial building activity has been in contraction territory since January, according to S&P Global's overall construction purchasing managers' index.
The confidence level edged up to 48.8 in June, marking the slowest decline in construction output this year and reversing the downward trend. A reading below 50 indicates a reduction in activity.
'It might be too early for upgrades, but the risk is definitely on the upside,' Lammin said.
'At the very least it will be a strong underpinning, with expectations that margins and volumes will accelerate from next year.'
Order books for listed UK infrastructure firms are at or near record levels already, according to Deutsche Numis analyst Jonathan Coubrough.
While government spending pledges tend to take several years to convert into construction activity, secured projects like Sizewell C can have a faster impact, Coubrough said.
He expects the nuclear project to contribute to solid order-book growth in the upcoming earnings season, particularly for Balfour Beatty, which was awarded contracts worth as much as £400mil a year until 2030.
High-speed rail project HS2 and BP Plc and Equinor ASA's joint venture Net Zero Teeside Power – a gas-fired power station with carbon capture – will also support profit gains over this year and the next for Balfour Beatty, Bloomberg Intelligence analyst Sonia Baldeira wrote in a note.
The London-based firm is the 'clear market leader in energy and power markets,' and should see the fastest growth among its peers this year as power firms increase their grid investments, Coubrough said.
He expects Morgan Sindall, Kier and Costain to benefit from upgrades to the UK's water infrastructure.
Costain in particular is set to be a major beneficiary of AMP8, a regulatory overhaul of the UK water industry that aims to modernise infrastructure and address environmental challenges, according to Investec's Lammin.
The company is working to deliver 260kms of new pipelines to enhance drought resilience in eastern England, and recently entered an agreement with United Utilities Group Plc to upgrade water and wastewater treatment sites as part of a £3bil project that will last until 2030.
Morgan Sindall is 'exceptionally well positioned' to deliver on the government's affordable housing commitments, Lammin said. It already raised its outlook for 2025 last month, with its construction division set to outperform revenue and profit expectations.
Kier, which specialises in road, prison and hospital infrastructure, lifted its medium-term operating profit margin goal, showing confidence in its pipeline.
Kier's ongoing turnaround is 'delivering solid results,' with a record £11bil of orders in the fiscal first half supporting its move toward growth after a period focused on paring debts, BI's Iwona Hovenko said.
Still, delays in planning approval, difficulties in securing funding and inflationary pressures might complicate the delivery of such projects and the steady earnings growth that is expected to come with them.
'The administrative process of planning and getting these things funded takes time and usually longer than everybody hopes for,' Lammin said.
The biggest obstacle is engineering capability and human resources, according to Coubrough, particularly for complex projects such as power grid upgrades and tunnel projects.
The shortage of skilled workers can in turn increase construction costs, worsening funding challenges. — Bloomberg
