Engineering & Infrastructure

Engineering & Infrastructure: Infrastructure Away! Spotlight Following one of the better annual share price performances registered by Engineering and Infrastructure equities, 2022 finds a high bar to exceed. Better than expected recovery out of the pandemic combined with the expectations and the reality of significant fiscal stimulus provided a supportive tailwind. We believe 2022 will build upon the continued success of several E&I companies who have executed transformation of their  business models to support predictability, visibility and growth in revenues, margins and cash generation allow for accelerated accretive capital allocation to support business fundamentals and valuation. We expect E&I equities will benefit from a business mix that should continue to gain support from expanded US and International government spending towards infrastructure, defense and environmental/ESG initiatives. However, we believe private sector construction trends appear supportive as well as expected release of pent up capital investment among energy, power, industrial and manufacturing clients. E&I firms have enhanced liquidity and generally overcapitalized financial profiles that appear set to continue driving scale in bolt on acquisitions and higher capital returns to shareholders through growing dividend payments and opportunistic share retirements. Despite 2021 outperformance, we believe E&I valuations appear underpriced relative to industrial peers. We believe 2022 should support improved valuation among E&I sector. (Link to E&I Outlook)

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Michael S. Dudas

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