Underground Construction - July 2019 - 15

solutions in the gas, power and communication segments. MasTec invested in the gas
transmission segment with its acquisition
of Kingsley Constructors. This increased its
presence in the Permian Basin and capabilities in the midstream market.
Private equity also continues to invest in
the underground infrastructure segment.
KLH Capital, Incline Equity and The Jordan

Company invested in companies performing
installation, repair or replacement of power
and communication infrastructure. With
investment expected to continue, through
investor-owned utilities on infrastructure
in need of repair and major communication
companies on their 5G infrastructure,
growth and consolidation in the underground market will remain strong. *

54%
44%

S&P 500
UCC index

34%
24%
14%
4%
-6%

e-1
6
Au
g.16
Oct
.-1
6
De
c.16
Feb
.-1
7
Ap
ril17
Jun
e-1
7
Au
g.17
Oct
.-1
7
De
c.17
Feb
.-1
8
Ap
ril18
Jun
e-1
8
Au
g.18
Oct
.-1
8
De
c.18
Feb
.-1
8
Ap
ril19

-16%

Jun

The UCCI presented below presents
the performance of the sector's publicly
traded stocks year-to-date (Figure 1),
the past one year (Figure 2) and the
past three years (Figure 3).
Year-to-date (YTD) performance is
average relative to the performance of
the S&P 500. February 2019 represented
a high point for the UCCI due to expectations for an infrastructure bill and rising
oil prices. Oil prices have not increased at
the rate expected, companies have missed
earnings expectations due to weather and
cost increases, and the infrastructure bill
failed to materialize.
The results are depressed stock prices
relative to other segments of the market.
Revenue is higher year-over-year for the
UCCI companies. However, profitability
must continue to improve for the segment
to outperform.
UCCI remains more volatile than the S&P
500. There are two primary periods that
have influenced the index's performance
relative to the broader market. Figures 2
and 3 illustrate the declining performance
of the UCCI, while the S&P 500 continued
to rise from June through October of 2018
and then again February through April of
2019. The result is market growth of almost
7 percent over the past 12 months, while
UCCI has declined over 20 percent.
The drop in the 2018 UCCI correlates
with the decline in oil prices and the recognition that 5G construction rollout was
moving slower than expected. In 2019, the
decline is much more performance oriented. One of the wettest winters across the
country impacted revenue growth alongside
increasing labor and material costs.
As we look at valuation (Figure 4), the
worth of companies within UCCI have
varied significantly based upon backlog,
operating performance and exposure to
select end markets. Overall, valuation
has increased, but not at the rate of the
broader market.
Valuation will be influenced by macroeconomic factors in the next two quarters,
as trade discussions in North America
and with China play out. In addition, the
Federal Reserve has slowed rate increases
and could reverse course if the economy
slows to boost market activity.
Second-quarter 2019 deal activity
(Figure 5) has held steady, as consolidation
continues in underground construction and

Figure 3. 3 Year UCC Index. Source: FMI Research, S&P Capital IQ; as of June 19, 2019
FIGURE 4. UCC Index Companies' Operating Performance & Valuation Metrics
Enterprise
Value (EV)

LTM
Revenue

LTM
EBITDA

LTM
EBIT

Book
Value

EV/
EBITDA

Price/
Book

7,501.6

4,646.5

626.6

399.2

1,914.6

12.0x

2.0x

Quanta Services, Inc.

7,085.3

11,561.1

884.0

631.7

1,520.6

8.0x

1.5x

MasTec, Inc.

5,423.0

7,030.9

720.6

498.6

73.1

7.5x

2.5x

Company
MDU Resources Group

Dycom Industries, Inc.

2,670.4

3,230.1

297.9

115.3

339.6

9.0x

2.2x

Granite Construction Incorporated

2,089.6

3,374.8

205.6

80.7

1,052.7

10.2x

1.6x

Primoris Services Corporation

1,464.8

3,096.9

229.8

145.7

320.8

6.4x

1.6x

Aecon Group Inc.

1,286.8

3,373.3

176.3

83.7

337.0

7.3x

1.5x

Aegion Corporation

857.5

1,285.6

92.2

55.2

70.3

9.3x

1.2x

MYR Group Inc.

729.7

1,653.7

85.7

44.7

241.6

8.5x

1.8x

Matrix Service Company

475.0

1,311.1

39.9

21.4

222.5

11.9x

1.6x

87.9

143.8

16.0

6.8

60.4

5.5x

0.9x

Low

5.5x

0.9x

Mean

8.7x

1.7x

The Goldfield Corporation

Median
High

8.5x

1.6x

12.0x

2.5x

Source: S&P Capital IQ, data as of June 19, 2019; all data is TTM.

FIGURE 5. Recent Deal Activity
Announced

Target

Acquirer

Business Description

June 2019

ElectriCom

KLH Capital

Power & gas distribution and
communication construction

June 2019

Unified Power

Incline Equity Partners

UPS maintenance services

May 2019

General Utility Construction

Y-COM Holdings

Cable & fiber construction

Mar. 2019

Sabre Industries

The Jordan Company

Power T&D

Mar. 2019

Kingsley Constructors

MasTec

Gas transmission
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