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Our Monthly Monitor newsletter is designed to provide a quick overview of sector news flow, share price performance, and keymacro data trends that are relevant to our universe of infrastructure and construction (I&C) related stocks. Despite theaccentuated volatility that came to define the whole market in 2011, most of our I&C stocks ended December more or lesswhere they started the month (see Exhibit 1). The three exceptions were Armtec Infrastructure and Canam, which were up 39%and 23% respectively, and GLV which was down 21% in the month. On average, our I&C coverage universe averaged a 1% returnfor December compared to the 2% decrease in the TSX. As we start a new year, some of the key I&C sector observations that wewish to highlight are as follows:
- Although signs emerged early last year that “Life After Stimulus” had effected a slowdown in Canada’s publicly-fundedconstruction market, we believe the real litmus test will be 2012. Bond markets around the world are vigilantly ushering in anew ‘age of austerity.’ Canada remains in relatively good shape, yet many economists still expect the next federal budget(in February) to feature additional cutbacks in a number of areas, possibly including infrastructure investments. Manyprovincial governments are facing similar (and in some cases more alarming) pressure to proactively initiate fiscal discipline.
- Meanwhile, Canada’s private construction market should remain robust provided that current commodity prices prevail. Onthe other hand, the country’s residential construction market, which has thus far defied all odds, looks increasingly ‘toppy.’
- There has been more evidence lately that the US construction industry is finally (albeit slowly) pulling out of its longrecession. We still expect Canada’s I&C market to outperform, despite the aforementioned headwinds. But given the lowbase upon which this recovery is starting, the related upside for companies with some US exposure could be significant.
- Consolidation remains a key theme across our universe of I&C stocks. One of the most recent examples of this trend inCanada is Vinici’s purchase of Carmacks, an Edmonton-based contractor specializing in heavy civil projects.
