Underground Construction - January 2020 - 16

2020 Outlook and Utility & Communications Construction Update
29
S&P 500
UCCI

24
19
Percent

14
9
4
-1
-6
Jan.-19

Feb.-19 Mar.-19

April-19

May-19

June-19

July-19

Aug.-19

Sept.-19

Oct.-19

Nov.-19

Dec.-19

FIGURE 3: YTD UCC Index. Source: FMI Research, S&P Capital IQ; as of December 4, 2019
77

S&P 500
UCCI

Percent

57
37
17

Dec.-20

Sept.-19

June-19

Mar.-19

Dec.-18

Sept.-18

Mar.-18

June-18

Dec.-17

Sept.-17

June-17

Mar.-17

Dec.-16

June-16

Sept.-16

Mar.-16

Dec.-15

Sept.-15

June-15

Dec.-14

-23

Mar.-15

-3

FIGURE 4: 5 Year UCC Index. Source: FMI Research, S&P Capital IQ; as of December 4, 2019
FIGURE 5: UCC Index Companies' Operating Performance & Valuation Metrics
Enterprise
Value (EV)

LTM
Revenue

LTM
EBITDA

LTM
EBIT

EV/
EBITDA

Price/
Book

MDU Resources Group, Inc.

8,319.8

5,168.4

717.0

470.1

11.6x

2.1x

Quanta Services, Inc.

7,826.7

12,111.6

898.3

631.5

8.7x

1.5x

MasTec, Inc.

6,296.5

7,391.5

805.2

574.6

7.8x

2.9x

Dycom Industries, Inc.

2,607.3

3,350.7

301.6

114.7

8.6x

1.8x

Primoris Services Corporation

1,667.2

3,194.2

241.0

153.2

6.9x

1.7x

Aecon Group Inc.

1,354.1

3,491.6

173.3

99.7

7.8x

1.3x

Granite Construction Incorporated

1,241.3

3,389.8

10.0

(116.5)

124.5x

1.0x

Aegion Corporation

977.7

1,238.4

87.2

50.5

11.2x

1.5x

MYR Group Inc.

757.2

1,946.4

90.7

46.9

8.3x

1.6x

Infrastructure and Energy Alternatives, Inc.

480.5

1,216.6

37.0

(9.5)

13.0x

Matrix Service Company

459.2

1,436.3

62.9

44.5

7.3x

1.6x

89.5

160.5

17.8

7.4

5.0x

1.1x

Low

5.0x

1.0x

Mean

8.8x

1.6x

Median

8.3x

1.6x

13.0x

2.9x

Company

The Goldﬁeld Corporation

High

Source: S&P Capital IQ, data as of December 4, 2020; all data is TTM EV/EBITDA values greater than 20.0x excluded from summary calculations

JANUARY 2020 | UConOnline.com

shows the performance of the sector's
publicly traded stocks over the past year
(FIGURE 1) and past ﬁve years (FIGURE 2).
We have included an additional company in
the index for 2020 - IEA, which went public
on March 26, 2018, and has a substantial
utility infrastructure focus related to its
subsidiaries in the power and civil markets.
Year-to-date performance of the UCCI
is up 10.8 percent, but underperformed
relative to the S&P500, which is up over
24 percent YTD. Revenue and earnings
growth have exceeded expectations, but
the public market has penalized those
companies with exposure to oil and gas.
Even the communication companies have
depressed multiples relative to historic
norms. Because the public's perception of
value does not align with management,
we are again seeing several stock buyback
programs being initiated by companies,
such as Matrix, Primoris and Aecon.
The UCC Index is signiﬁcantly more
volatile than the S&P 500 and you can
see the impact that oil prices, expectations for infrastructure investment at
the federal level, and the ongoing tariﬀ
negotiations with China have had on the
UCC companies. Going into an election
year with limited prospects for federal
investment, UCCI growth will be driven by
investor-owned utility investment in existing infrastructure, and communication
investment in 5G programs nationally.
2019 represented a relative slowdown
in the M&A segment, as valuation
expectations for private owners have
increased beyond the appetite of some
of the more active, strategic buyers. We
expect increased activity in 2020 to drive
growth and consolidation of key industries
(primarily communication driven).
We also expect further consolidation of
companies providing unique, high-margin
services to the wet utility segment. While
we anticipate little assistance from the
federal government, the underlying
drivers for the utility and communication
segments remain strong and recessionresistant in 2020. *
DAN SHUMATE is a managing director with
FMI Capital Advisors. He focuses on mergers
and acquisitions, and business continuity
transactions in the utility transmission and
distribution sector.

http://www.UConOnline.com

Underground Construction - January 2020

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