Archived article
Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
magazineInfrastructure stocks diverge on HS2 hopes and energy price fears
There was good and bad news for infrastructure investors over the past week, depending on where in the sector they invested.
On the plus side, an infrastructure boom could be about to hit the UK after the government gave the green light to build the £106bn High Speed 2 (HS2) rail project, spelling good news for stocks in the space.
But for those investing in renewable energy, another area tipped for significant capital expenditure going forward, the outlook looks bleaker as falling energy prices led shares in renewable energy funds to plunge.
The go-ahead for HS2 comes after chancellor Sajid Javid promised an ‘infrastructure revolution’ in March’s Budget, while a recent report from PwC estimated total UK infrastructure spending to 2025 could reach £110bn.
Some of the stocks that stand to benefit in some way include construction companies Balfour Beatty (BBY), Kier (KIE) and Costain (COST), which have had doubts over big parts of their future income lifted.
Shares in Kier jumped around 10% to 116p on the morning of 11 February as news broke of the HS2 go-ahead while Costain shares traded 5.7% higher at 205p and Balfour shares were up 2.7% to 280p.
Several big money contracts have already been handed out for work on HS2, but question marks over whether the project would go ahead meant many firms didn’t count on the contracts on their order books, significantly denting their future growth outlooks.
In the case of Kier for example, which has been struggling with higher debt and lower profit, HS2 accounts for £1.5bn, or almost 16%, of all the contracted money it expects to earn in future.
Other companies which stand to indirectly benefit for similar reasons could include engineering services providers like Hill & Smith (HILS) and Renew Holdings (RNWH:AIM).
But for those who invest in renewable energy, confidence was dented after John Laing Environmental Assets (JLEN) shocked the market by lowering expectations on future energy prices by 7.5%.
A cut in future prices would be great for consumers but not the many investors who use renewable funds to diversify their portfolios.
Shares in rival investment trusts also dropped sharply on JLEN’s announcement, with the market having already been rattled by a hard-hitting report from analysts at JPMorgan Cazenove. The investment bank predicted a potential 40% slide in the shares of listed renewables funds due to the big premiums on which they trade and falling revenue from energy sales.
Important information:
These articles are provided by Shares magazine which is published by AJ Bell Media, a part of AJ Bell. Shares is not written by AJ Bell.
Shares is provided for your general information and use and is not a personal recommendation to invest. It is not intended to be relied upon by you in making or not making any investment decisions. The investments referred to in these articles will not be suitable for all investors. If in doubt please seek appropriate independent financial advice.
Investors acting on the information in these articles do so at their own risk and AJ Bell Media and its staff do not accept liability for losses suffered by investors as a result of their investment decisions.
