HS2 approval creates these share price winners

by Graeme Evans from interactive investor |

Greater certainty over the future of a new trainline has been a significant boost for these companies.

The green light for HS2 lifted uncertainty hanging over the order books of Kier (LSE:KIE), Costain (LSE:COST) and Balfour Beatty (LSE:BBY) today, helping shares in the engineering trio up by as much as 9%.

The Government's backing for the high-speed route connecting London with Birmingham, Manchester and Leeds also buoyed FirstGroup (LSE:FGP), having recently secured the right to run joint venture services on the West Coast Mainline, including delivery of HS2.

There was a further boost for transport shares, including Go-Ahead Group (LSE:GOG), with separate plans for a £5 billion investment in new buses, improved routes and higher frequencies. FirstGroup shares rose 4% to 130p to continue the rally seen over the past year, while fellow FTSE 250 index stock Go-Ahead added 2% to 2,166p.

Around two million passenger journeys are made using Go-Ahead's bus services every day, generating £1 billion in the last financial year and equating to 11% of services nationally.

Peel Hunt said today's news was good for sentiment across the transport sector, particularly following last week's announcement of £170 million support for more electric buses, increased rural mobility and a new trial of Superbus services.

Its transport analyst Alexander Paterson added:

“Our top pick remains Go-Ahead Group, and we are also buyers of FirstGroup which we see as a special situation break-up story.”

Source: TradingView Past performance is not a guide to future performance

Paterson added that HS2 progress was positive for Hargreaves Services (LSE:HSP), which is a preferred supplier for some of the specialist earthworks on the first section between London and Birmingham. The company said last month that it was well placed to provide “a specialist capability in a market with a small number of potential suppliers”.

While shares in Hargreaves were broadly flat at 301p, there was significant momentum for stocks elsewhere in the embattled infrastructure sector as key players eyed further contracts on top of those projects already secured.

Costain shares rallied by a much needed 5%, having fallen sharply on General Election day on 12th December after its second profits warning in the space of six months. That downgrade was blamed on increasing costs from the delayed A465 Heads of the Valleys road.

At the time of that warning, Costain pointed out that its end-of-year order book of £4.2 billion included £1.1 billion in respect of the high-speed rail scheme. This included enabling works across the southern section of the new route between Euston Station, Old Oak Common and West Ruislip. It's also involved in detailed planning, programming and design of the southern main works contracts, where construction is expected to commence in early 2020.

Like Costain, Kier received a welcome boost from the HS2 decision. Its shares crashed to their lowest level in 20 years in 2019 but have been showing signs of recovery since early December.

Source: TradingView Past performance is not a guide to future performance

The group's order book was £9.4 billion at the end of June. HS2 accounted for about £1.5 billion of that figure, but Kier said a postponement or cancellation of HS2 was not expected to have a “material impact” on its financial performance.

Its Eiffage Kier joint venture will deliver civil engineering works across an 80km section of the rail link, including 17 viaducts, 5km of tunnels and 75 overbridges.

Balfour Beatty (LSE:BBY) shares rose 4% to 281p and have now surged from 230p at the time of the General Election result.

It said in December that its end-of-year order book was expected to be over £14 billion, compared with £12.6 billion in 2018. This does not include certain HS2 work, which it said would only be included when the full project is given the green light.

In September, Balfour's VINCI SYSTRA joint venture secured the contract for the construction and delivery of HS2’s £1 billion Old Oak Common station. It follows Balfour Beatty VINCI’s appointment in 2017 to deliver HS2’s main civil engineering works package in a two-part design and build contract, valued at about £2.5 billion.

Last summer, Balfour expressed its frustration that vital decisions on infrastructure projects were being “repeatedly delayed”. However, it noted that HS2, new nuclear power (Hinkley and Sizewell) and airport expansion (Heathrow) had the potential to increase the Government’s investment in infrastructure from 0.8% of GDP in 2015/16 to over 1% of GDP by 2020/21.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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