Questor share tip: Construction firms set to build on infrastructure plans

The Hoover Dam was the most ambitious infrastructure project to tackle joblessness during the Great Depression. On a somewhat smaller scale, George Osborne's infrastructure plans should boost UK construction companies in the medium term.

It will take some time for them to feel the benefits of any UK spend – but it offers a boost in order books in the next three to five years.

However, UK companies are global players. The most interesting country on a near-term perspective is Qatar, which is hosting the football World Cup in 2022. The country has a "2030 Vision" plan. "By 2030, Qatar aims to be an advanced society capable of sustaining its development and providing a high standard of living for all of its people," the vision plan says.

Infrastructure spend in the troubled West, to boost employment and plans in emerging countries with budget surpluses such as Qatar, combine with an increase in commodity infrastructure spend to offer significant sector opportunities.

The whole sector de-rated over the summer and now it offers good growth and yields. Preferred plays are Carillion and AMEC.

Balfour Beatty
230.3p +11.8
Questor says BUY

Yesterday's contract news highlights why Balfour Beatty bought US group Parsons Brinckerhoff in 2009, funding the purchase through a rights issue.

The company is involved in all stages of managing infrastructure projects – and this unit has been awarded business from Qatar for roads and drainage. The five-year deal is worth £104m, with Parsons managing construction, logistics and supply chain interfaces.

Last week, Balfour also won a contract worth £110m as part of Crossrail to rebuild Whitechapel station. In its last trading update, the group's order book was about £15.5bn. Average net cash in the year to September stood at £240m, compared with its £1.7bn market capitalisation. Yielding, 5.5pc, the shares are a buy.

Carillion
299.7p +4.3
Questor says BUY

National Grid issued new shares last year, partly to fund investment in its UK distribution network – contracts are now coming through. Earlier this month, Carillion signed a framework with the Grid for upgrade work that could be worth up to £375m over five years.

Carillion has been increasing its support service operations, which are now about half of its business, through the downturn. Yielding 5.5pc, the shares are a buy.

Kier Group
£13.97 +17p
Questor says BUY

Demonstrating just how long it can take for planned projects to get to the contract stage, awards for the long-mooted Crossrail are now coming through.

Kier is in a three-way joint venture which won a contract worth £200m "plus" to rebuild Farringdon station. Before this deal was announced, Kier said its order book of secured and probable work represented 96pc of its forecast construction revenue for next year and 55pc for the year after. At the end of June, Kier had net cash of £165m, representing 31pc of its market value. Yielding 4.6pc, buy.

Morgan Sindall
570p +15
Questor says BUY

Crossrail has also provided a boost for Morgan Sindall, as it is part of the Balfour consortium to undertake work at Whitechapel.

The company is also exposed to the maintenance and fitting-out of affordable housing, although this area is competitive. The company says it is on track to meet full-year expectations and its balance sheet is strong with average net cash in the first half of £43m compared with its capitalisation of £236m.

The shares have fallen hard this year and are yielding 7.7pc and trading on a multiple of 7.2.

The dividend is 1.8 times covered by consensus earnings this year and the shares are a new buy.

AMEC
866½p +4½
Questor says BUY

AMEC's strategy has been to focus on higher-margin infrastructure and construction projects in
the energy, mining and oil and
gas sectors.

Significant investment is being made in all of these areas worldwide. The strategy appears to be working, with its order book standing at £3.3bn in
its last update.

In October, the group was awarded a project management contract with BP for a new oil rig on the Clair field, west of Shetland, as well as design work for the first stage of GDP Suez's Cygnus gas field operations.

AMEC also has a very strong balance sheet, with £455m cash at the interim stage, compared with a market value of £2.8bn. Yielding 3.4pc, the shares are a buy.

WS Atkins
625p +6½p
Questor says BUY

WS Atkins is a leading UK consultant in both the road and rail sectors, which make up a significant amount of the infrastructure package the Chancellor unveiled yesterday.

Atkins has been refocusing towards the Middle East. This resulted in a new contract with Qatar for roads and drainage, worth £65m. After the summer de-rating of the sector, the shares yield 4.9pc and are a new buy.