Underground Construction - October 2021 - 13

be poised to capture work. Additionally,
the use of federal funds to match state
and local spending often means the
impact in terms of projects generated
can be much higher than the stated
federal appropriation.
Despite the potential boon from
infrastructure spending, the supply of
labor and materials to complete the
work remain an ongoing battle for the
industry. The single largest challenge to
contractor profitability in the current
market is material prices where the
contractor is at risk. While owners have
been accommodating of project delays
due to supply shortages and changed
contracts to remove the material cost
from the competitive bid value, this
accommodating stance will likely change
as pressure to complete the work and
stay on budget increases. FIGURE 1
shows the change in producer prices
of final demand items through July
2021. The percentage change is striking
and will likely continue due to supply
shortages and demand imbalances.
As mentioned in previous discussion,
there are a couple numbers to review as
it relates to the coronavirus to determine
where we are at and if things are getting
better or worse. The first is the seven-day
average trend of deaths related to the
disease. Following the surge of the delta
variant, this lagging indicator has now
turned and is going down. The second
value that we pay attention to nationally
is coronavirus hospitalizations. The
United States is at a seven-day average of
10,210 as of Sept. 19 and this represents
a meaningful decline from August highs.
The Utility & Communications
Construction Index presented below
presents the stock performance of
the sector's publicly traded stocks
year-to-date (FIGURE 2) and the past
three months (FIGURE 3). The yearto-date
performance demonstrates
the sizeable increase in valuation that
the UCCI companies have experienced,
over 28 percent through September.
The negative impacts of rising prices,
potential changes to tax law, and the
risk of political stalemates have kept
the lid on the growth for the prior three
months. The action of congress and the
progression of coronavirus are the two
primary factors in whether we continue
to maintain strong valuations of the
UCC Index or experience a post-election
expectation decline like 2016 and 2018.
Transaction activity in 2021 is nearing
2007 levels of activity. The first three
quarters were among the busiest on
record and there is meaningful activity
that will further shape the underground
construction landscape to occur before
the year ends. The primary motivation
3
5
7
-1
1
-3
-5
-7
-9
6/29/21
7/28/21
8/26/21
9/27/21
FIGURE 3: 3 Month UCC Index. Source: FMI Research, S&P Capital IQ; as of September 27, 2021
S&P 500
UCC Index
for the activity has been potential
changes in capital gains tax laws
prompting owners to decide whether the
time is right to sell. When you combine
this motivation with the frenzy of the
public markets and the cost of financing,
owners are taking advantage of a seller
friendly position. *
1
" The Senate Approves $1 Trillion Bipartisan
Infrastructure Bill in a Historic Vote. "
NPR. Aug. 10, 2021
PIPELINE News magazine is
THE source for pipeline project
information and construction
news, worldwide.
Each month, over
250 projects are listed:
F Planned Projects
(in development),
F New Projects
(recently awarded), and
F Ongoing Projects
(construction underway).
Gas, oil, products and
other pipelines are
tracked.
pipeline-news.com
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Underground Construction - October 2021

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