Underground Infrastructure - July 2023 - 14

Utility & Communications Construction Update
momentum. As technology continues to
improve and the cost of electric equipment
comes down, we expect to see a
more widespread adoption of electric construction
equipment in the years to come.
Th e Utility & Communications Construction
Index presents the stock performance
of the sector's publicly traded
stocks year-to-date (FIGURE 2) and the
past three months (FIGURE 3).
Th e S&P 500 is up almost 15 percent
year-to-date, due to sustained spending
and growth of the U.S. economy. Th e
Federal Reserve continues to be conFIGURE
2: YTD UCC Index. Source: FMI Research, S&P Capital IQ; as of June 16, 2023
FIGURE 3: 3 Month UCC Index. Source: FMI Research, S&P Capital IQ; as of June 16, 2023
FIGURE 4: UCCI Company Performance. Source: FMI Research, S&P Capital IQ; as of June 16, 2023
FIGURE 5: Recent Deal Activity
Announced
April 2023
Target
Tower Engineering Professionals
14 JULY 2023 | UndergroundInfrastructure.com
Acquirer
H.I.G. Capital
Business Description
Communication Services
cerned about infl ation, but the most
recent rate pause suggests it is willing to
sustain a rate environment for some time
to determine if there have been suffi cient
impacts to the underlying economy to
slow infl ation.
Due to infrastructure and utility expenditures,
and expected government
spending to address the energy transition,
the UCCI companies continue
to outperform the broader market.
UCCI is up over 24 percent YTD [see
FIGURE 2] though most of the delta
between UCCI and S&P 500 did occur
in the fi rst quarter. UCCI moved much
more in-line with the S&P 500 in the
past three months [see FIGURE 3].
Companies that comprise the UCCI
have held valuations and maintained
consistent performance, despite the headwinds
that are facing other industries. We
would expect the service companies to
experience pushback on price increases
from both investor-owned utilities and
municipalities, as their customer base
struggles with rising utility bills. Th us,
margin pressure from labor, limited price
increases and fuel prices may impact performance
in the remaining months.
At the beginning of June, MDU successfully
executed the spinoff of its construction
materials subsidiary, Knife River,
to the public markets, creating two companies
that are more focused on their respective
end markets. Th is allows management
at MDU to focus eff orts on growth in the
utility services and construction markets.
Despite the public activity, the pace of
underground infrastructure mergers and
acquisitions remained muted in the second
quarter of 2023. Th e primary areas of
interest for acquirers remain the communication
and power markets - fi nding a way
to participate in the federal spending on
infrastructure remains a primary objective.
As interest rates rise and valuations
for public companies decline, the gap
between what a seller is looking for and
what a buyer views as acceptable begins to
widen and creates a more challenging acquisition
environment. We expect for the
second half of the year to lag deal activity
in 2022 due to high costs of fi nancing and
recessionary concerns by the Federal Reserve's
activity. UI
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Underground Infrastructure - July 2023

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