Underground Infrastructure - April 2023 - 11

no longer be increasing, they are not
yet falling. Th us, fi nancing will likely
remain at current levels through 2023,
until there is stabilization for the price
of goods and services.
While these challenges aff ect the
fi nancing and price of goods, supply
chain challenges have eased in the last
two quarters and the sustained investment
in the utility infrastructure sector
has resulted in strong backlogs and work
opportunities for utility contractors.
Coming out of conference season,
sentiment remains high, and supply of
labor is the one constraint that is keeping
the industry in check. We continue
to see consistent investment in existing
infrastructure and a healthy pipeline of
bid opportunities for new construction.
Th e only utility market that is feeling
the pinch is new construction tied
to residential construction. Many new
home developments have slowed due
to reduced demand in a high-rate environment.
Th ough this market appears
to be loosening, as homeowners adjust
to the new normal, it is still signifi cantly
lower than 2021-'22 levels of activity.
UCCI Performance & Updates
The Utility & Communications Construction
Index (UCCI) below presents
stock
performance of the
sector's publicly traded stocks over the
past quarter and the past year.
In the first quarter of 2023, the
the
UCC Index has experienced healthy
growth relative to the broader market,
as it's increased by over 13 percent
year-to-date. Comparatively, the S&P
500 has risen only 4.7 percent over the
same period.
Expectation for the sector is that
investment and funding through federal
sources should make the sector
resilient to any market impacts caused
by the fi nancial sector's volatility. Th at
said, valuations continue to rise, and
the market expects continued growth
to meet valuation expectations that are
near all-time highs.
I also found it interesting to take a
look back at the three-year performance
FIGURE 3: UCC Index Companies' Operating Performance & Valuation Metrics. Source: S&P Capital
IQ, data as of March 21, 2023; all data is TTM
FIGURE 4: Recent Deal Activity
Announced
03/2023
02/2023
02/2023
02/2023
02/2023
Target
Wise Connect
McKee Utility Contractors
Ardurra Group
Allegiant Utility Services
NG Companies
Acquirer
GridSource Incorporated
Boyne Capital Partners
Littlejohn & Co.
SPARUS Holdings
Rockwood
Market Segment
Communication
Water/Wastewater
Water/Civil
Power/Smart Grid
Underground Construction
While these challenges aff ect the fi nancing and price of goods,
supply chain challenges have eased in the last two quarters
and the sustained investment in the utility infrastructure sector
has resulted in strong backlogs and work opportunities ...
of UCCI. Th ose who had invested near
the downturn that occurred, due to
COVID-19, and held throughout this
period, would have tripled the value of
their investment. UCCI is up almost
290 percent over the three-year period
and grew signifi cantly more than the
S&P 500 that increased roughly 80 percent
over the same period.
The Infrastructure Investment and
Jobs Act, along with expectations for
increased spending to fuel the transition
to renewables, benefited UCI companies
over the period. UCCI reached
its all-time high in March of 2023, so
expectations for continued growth and
profitability will be challenging, especially
with all of the factors outside of
the contractor's control.
Mergers & acquisitions
Despite the relative quiet M&A market
in most industries, due to increasing
debt cost from rate increases at the Federal
Reserve, the utility and infrastructure
M&A markets have continued to
be active. Long-term trends of utility
infrastructure repair and replacement,
and electrifi cation of the power grid
continue to drive activity.
Additionally, the amount planned to
be spent in the water and wastewater
segments have opened a new avenue
of investment for private equity. We
expect stable, continued interest in the
underground infrastructure space as
sustained federal and state investment
and investor-owned utility investment
remain at peak levels. UI
UndergroundInfrastructure.com | APRIL 2023 11

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Underground Infrastructure - April 2023

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