As previously reported on BRIIDGE, while high debt burdens and elevated valuations driven by speculative frenzy have tempered the market impact of secular tailwinds for renewable energy, especially in a rising interest rate environment, government fiscal stimulus measures such as the Inflation Reduction Act and the Infrastructure Investment and Jobs Act have had a more prolonged impact on market prices for companies in the construction and engineering industry.

These acts, aimed at bolstering infrastructure development, clean energy, and domestic semiconductor manufacturing, have provided significant support to the industry.

Fig 1: Performance 1YR Horizon

BRIIDGE Shortcut: TS Reference Index

Fig 2: Sales Growth [1YR Rolling]

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA

While rising interest rates negatively affected long-duration assets in the utilities-renewable and solar industries, the contract-based nature of services involving low-duration assets in the construction and engineering industry has contributed to sustained market outperformance over the past three years.

Additional demand drivers include market consolidation through acquisitions and the diversity of industry segments —ranging from clean energy and data centers to secular trends such as AI and crypto mining, as well as high-tech manufacturing—all of which act as a hedge against inflation.

With several hundred billion dollars expected to be invested through these stimulus packages in the coming years, the outlook for the construction and engineering industry appears bright, as evidenced by the continuously growing order book backlog.

Although the median margins delta has remained moderate over the past few years, it has stayed consistent with historical norms. Predictable cash flows, occasional better-than-expected quarterly results, and an improving outlook have helped sustain the industry's market momentum.

Fig 3: Operating Margin [1YR Rolling]

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA

Fig 4: Free-Cash-Flow To Sales [1YR Rolling]

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA

On a comparative note, while operating margins are trending down for utilities-renewable and cyclical for the solar industry, they remain stable for construction and engineering. A lower debt burden has also shielded the industry from the negative effects of rising interest rates.

As the economic cycle transitions towards easing, an arbitrage opportunity may emerge, particularly as demand drivers align and cyclicality linked to interest rate correlation takes center stage.

Fig 5: Net Income Margin [1YR Rolling]

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA

Fig 6: Performance [1YR]

BRIIDGE Shortcut: TS Reference Index

Fig 7: Dividend Yield

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA

Fig 8: Net Debt To Ebitda [1YR Rolling]

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA