A Government Infrastructure Plan On Cards: What To Expect?

  • Jun 29, 2020 BST
  • Team Kalkine
A Government Infrastructure Plan On Cards: What To Expect?

Summary

  • Boris Johnson to announce a new plan this June end to revive economic growth
  • Construction activity has shrunk by over 40 percent this April
  • The plan must incorporate green initiatives – advises a leading thinktank
  • A closer look at two leading construction companies- Balfour Beatty Plc and Kier Group

 

The United Kingdom’s Prime Minister Boris Johnson plans to unveil a new infrastructure plan on June 30 to give a big impetus to the slowing economy, marred by the corona pandemic. Interior Minister Priti Patel said that government will be rolling out measures that will boost construction of infrastructure projects. These projects could be related to building of housing, roads, communications, railways, schools and hospitals. The government claims that it’s spending on infrastructure creation will have a multiplier effect on the economy, and would kick-start a broad-based economic growth, by generating more jobs.

It is pertinent to note that unemployment rate in the UK was recorded at 4 percent for February to April 2020, and is expected to get doubled for the year 2020, due to the impact of the coronavirus pandemic.

The UK government is also updating its work guidelines for the construction sector, which will come into effect from July 4. They incorporate the one-meter social distancing rule, and will be released in a few days’ time.

The construction sector has been one of the worst affected sectors in the UK, due to the pandemic. With lockdown in place, and building activities stalled, the industry has suffered huge revenue losses. The industry did try and work marginally through its digital and offsite platforms, but that could not boost the sector’s performance and fill up for the losses of not working on-site.

Construction sector’s activity went down post lockdown

The British construction sector performed dismally in April 2020, the first month of full lockdown in the country. For the month of April 2020, construction activity had shrunk by a record 40.1 percent, reaching a figure of £7,615 million as compare to the same period last year, led by fall in new work orders as well as repair & maintenance works. The country went into a lockdown beginning March 23 this year.

 

Construction Output, April 2020

Note: ‘a’ denotes a record fall since Jan 2010, the time when monthly records began

(Source: Government of UK)

The above table shows that during February to April 2020, construction activity (depicted as ‘total all work’) dropped by a record 18.2 percent, as compared to the same period an year ago.

In a separate report by the global consultancy firm Turner & Townsend, Britain’s construction sectors has witnessed massive productivity losses during the lockdown period, by up to the level of 35 percent. The main causal factors for this fall have been labour shortfall, rising costs, implementing social distancing norms, and delays in arrival of inputs.    

Is the UK infrastructure construction green enough?

Incidentally, Green Alliance, a leading UK-based thinktank came out with a report titled ‘Blueprint for a Resilient Economy’ on June 29. It has raised concern over the fact that infrastructure projects in the UK government’s existing plan are not expected to take the nation towards its green targets. The Alliance claims that the government should be investing £8.7 billion annually till 2023 in road construction using low carbon ingredients. Green investments worth up to £4.4 billion will also be needed towards buildings and industrial infrastructure to fulfil the ‘going-green’ shortfall.

The thinktank insisted that the Government must keep these long-term goals in mind while coming out with its new infrastructure plan for the growth and development of Britain. A short-term approach will revive only the non-renewable industries like coal and oil & gas. On the other hand, a long-term approach will hand-hold the development of renewables’ sector, through greener infrastructure initiatives.

Let us now take a closer look at two leading companies in the British infrastructure sector namely the Balfour Beatty Plc and the Kier Group.

Balfour Beatty Plc (LSE:BBY) is a leading global infrastructure company, based out of Britain. It is listed on the London Stock Exchange, and is also a part of the FTSE 350 index. The company’s financial results for FY 20 depicted an underlying revenue of £8.4 billion, along with a profit before tax worth £200 million. Its operating profit was worth £47 million.

It was reported on June 15 that Balfour had won a contract worth £21.8 million for putting up a concrete barrier near Dover in the United Kingdom, to effectively manage congestion. It has to be completed before December 31, 2020 as Britain is expected to experience road congestions without it, after the country officially leave the EU.

The company has also begun work on a highway improvement scheme at East Yorkshire on June 2. The project is sized at £355 million. The construction is expected to upgrade connectivity between the waterfront and Hull city centre.

The company stock (LSE:BBY) traded at 253.80p at 12.42 am on June 29, down by 2.29 percentage points. It had a market capitalization of £1,793.32 million and an earnings per share of 0.19. The stock’s 52 week low/high range was recorded at 189.60 / 293.40, with a negative year-to-date return of (2.99) percent.

Kier Group (LON:KIE) is a leading British infrastructure company, working across construction, real estate and infrastructure services domains. It is expected that with Boris Johnson’s infrastructure plan in place, the company would be positively impacted, being the country’s largest infrastructure group. The company released its HY 2019 results in March 2020. It had a net debt worth £242 million, and its revenue for the six month period ending December 2019 was at £1,866 million, down by 9 percent, as compared to same period last year.

The company stock (LON:KIE) traded at 97.75p at 12.42 am on June 29, up by 8.85 percentage points. It had a market capitalization of £145.99 million and a negative earnings per share of (1.59). The stock’s 52 week low/high range was recorded at 61.65 / 149.50, with a negative year-to-date return of (4.96) percent.

As a summary, there is a definite cheer around with the news of government’s plan coming out on June 30 to boost the infrastructure sector in Britain. Once ground level action begins on the same, it is almost sure to bring in benefits of rising jobs and many other growth multiplier effects, to revive the UK economy.

 


Disclaimer
The website has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. The above article is NOT a solicitation or recommendation to buy, sell or hold the stock of the company (or companies) under discussion. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site.

 

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