In today’s Exponential Investor…
- A well timed WhatsApp message
- What are all the piece of this jigsaw?
- Two companies you need to be looking at
A friend of mine is an economist. Don’t hold that against him (although I regularly do).
He’s a smart guy and has been an economist for a number of the world’s leading mining companies over the years.
So he knows a thing or two about infrastructure and the economics behind it. Out of the blue this morning he sends me a WhatsApp message…
The UK infrastructure spending probably gets HS2 built sooner!
He followed it up with,
Cement, concrete, copper companies will boom.
I told him his timing was surreal. We then got into a bit of a thread, much like what I wrote to you about yesterday. How there’s an infrastructure-spending push coming so hard that it could see a number of industries run riot and make a killing.
Everything from the industries I identified yesterday such as engineering services, to waste management, networking and communications.
Also interestingly, as I write this outside my house gigabit fibre connections, fibre-to-the-premise (FTTP), is being rolled out in my street. The contractors are literally cutting up the pavement, laying the new cabling and patching it all up.
The company that’s doing my street is private (I checked already) and the CityFibre organisation that’s doing this rollout is also private.
But this is the kind of infrastructure spending that here in the UK is only set to ramp up. And with billions of pounds up for grabs, it could turn into an absolute meat market for the right kinds of infrastructure companies.
Where’s the proof?
Now it’s one thing to say, “Oh yes, infrastructure spending, happy days, companies could profit.” But to actually give you two examples is far more encouraging. You want some proof there are UK-listed companies that could be in the mix to potentially profit from “Project Speed”.
When you really start to look at every piece of this jigsaw, you start to see where opportunity lies.
Think about it like this…
Let’s say a new train station is going to get built. Well, what do you need to make a train station? You obviously need the rail line to get there. But what else?
Well, there are signal boxes, there’s the landscaping that protects the rail and the actual station itself. And what goes into that? Bricks, concrete, flooring, cladding, everything you need to make a building.
Those rails that move to and from the station, what sits underneath them? Well there’s more concrete of course. And what else? Well copper to help the signalling operate, the foundations to ensure the signal boxes don’t blow over in wind, the roads, and fencing needed for the car parks.
You get the idea? Now think of what’s needed to build ten new stations, or 100. And that’s just the rail network. There’s more housing, there’s more schools, hospitals, all the things that “Project Speed” is promising.
What else? Well schools, hospitals and train stations need to be modern, so they need networking, WiFi and high-speed communications. Correct. Things like 5G networking need to be right there – things like WiFi hotspots, gigabit fibre, smart access systems and real-time information hubs.
And when you consider everything that goes into these kinds of projects, you start to realise the massive opportunities that you can play right now to potentially profit from this mass spending spree that’s coming.
Also, when we think of building materials, the companies that perhaps come to mind are overseas ones. Companies like Cemex, Wienerberger, these giants of industry. But remember this is a domestic spree, designed to restart the domestic economy.
Which means the preference is going to be on UK companies and UK-listed companies.
And you only need to look on your own doorstep to find two that could stand to benefit for a mass infrastructure spending spree.
Two that immediately spring to mind, that many investors haven’t heard of are Forterra (LSE:FORT) and Ibstock (LSE:IBST).
These are relatively small compared to giants like Cemex and Wienerberger but could be critical plays in the economic engine that’s right on the horizon.
Forterra, for example, is a manufacturer of bricks, blocks and precast concrete for the building and construction industry. While it’s clear that this year the company will take a hit due to the effective shutdown of construction in the economy, you can’t believe that the long-term view is as dire as it has been.
This is a company that for the last five years has grown revenues, grown EBITDA, continues to be profitable and has historically paid a dividend for the last four years (increasing each year).
And when you look at its 52-week stock price range, it topped out around 400p in February this year, only to get crunched by the crisis and hit a low of 157p in March.
Even now as it trades around 200p, it’s still 50% off from its February highs. While the road to recovery might initially appear rough, volatile and protected, you’ve got to consider something like Forterra in a long-term strategy.
Ibstock is in a similar state.
It too is a manufacturer of brick and concrete products for construction and building. It also manufactures products specifically for the rail industry such as cable protection, signal bases and retaining walls through its Anderton Concrete subsidiary.
You would have to consider that with mass spending for infrastructure projects, that a company like Ibstock stands to benefit.
Of course right now, this is a company that’s been smashed due to the same conditions all industry has faced. An effective overnight seizure of operations and revenues. Ibstock saw year-on-year growth in revenues and EBITDA but a decline in profit and hence earnings per share.
Still, it’s profitable too and historically pay a dividend. And when you look at its stock price, its 52-week range is from up around 323p in late February to a bottom of 131p in March. And now even at 177p, you’ve really got to consider this sort of company with a long-term view.
What will the next nine years be like?
If the money is coming for infrastructure, building and construction, where is that money going to flow? Who benefits from these projects and this spending? This doesn’t just play out overnight, this plays out over years.
Smart investors take a long view in conditions like these. They assess what’s happening now and where that flows tomorrow, in a month’s time, in a year’s time. And they make their moves now.
What I’m saying is that when you look around, it’s easy to get complacent and just think everything is turning to the crapper. But it’s not that bad when you push the boat out a little. As I’ve said before, I think Britain is on the cusp of a real boom period.
Okay, sure the 20s haven’t got off to a great start. But there’s a bloody long time left in the decade. So ask yourself is it going to be like this for the next nine years? I doubt it. My guess is you doubt it too.
Which is why when you’re looking for companies to play this market and a potential British boom, these are just two that really need to be on your radar.
Editor, Exponential Investor