A steady increase in work on big infrastructure projects, including HS2, means it is a good time to invest in the sector, according to investment bank Peel Hunt.
The sector is experiencing “sustainable growth”, while “more disciplined procurement” means cashflow is likely to remain robust in infrastructure, an industry note by the bank says.
“We acknowledge that poor historic project delivery has proven costly for investors, but recent company performance would suggest ‘legacy’ issues are now largely dealt with,” it reads.
The value of infrastructure output is set to increase from £22.9bn before the coronavirus pandemic to more than £30bn by next year.
Peel Hunt also notes that “stronger supply chains and […] a collaborative focus on risk allocation” make the sector more attractive to investors.
“Rising costs and industry supply chains seem not to be having a material impact on margins, investment appetite or the pace of project delivery,” it adds.
Peel Hunt’s buoyant tone comes days after the Construction Products Association (CPA) predicted that ongoing work at projects such as HS2 and Hinkley Point C, along with the recent publication of five-year spending plans, will boost infrastructure to 8.8 per cent growth this year. The sector is also set to grow by about 4.6 per cent in 2023, the industry body predicted.
The construction industry as a whole, however, is set to face a slowdown in growth, caused by labour shortages, raising material costs, bigger energy bills and the Russian invasion of Ukraine, the CPA said. In particular, the combination is expected to hit the private housing construction and maintenance sectors later this year.