TD Securities Engineering & Construction Conference 2023 Highlights

The TD Securities team was thrilled to host our annual Engineering & Construction Conference in-person again for the first time since 2019. Our presenters included the full range of public E&C companies in Canada, participating in a series of insightful Q&A sessions that highlighted the key themes driving their businesses and the sector. With the current strong focus on infrastructure investment and energy transition by governments, this sector is as important as ever in the capital markets and the broader economy. On behalf of the entire TD Securities team, thank you to all our corporate and institutional clients for making the conference a success.

Paul Barbera
Managing Director, Investment Banking, TD Securities

This year's TD Securities Engineering & Construction Conference featured fireside chat-style discussions with senior management from companies active in the Engineering & Construction and Equipment Distribution sectors. Although the seminars covered a wide range of topics, several related themes emerged throughout the majority of the conference’s sessions.

There was widespread agreement among participating companies that the overall outlook for infrastructure investment is positive. Governments across multiple regions remain focused on addressing infrastructure deficits and meeting the needs of growing/evolving populations. Notably, participants viewed the outlooks for infrastructure investment in Canada, the U.K. and Australia as healthy. They were particularly upbeat about the outlook for U.S. infrastructure activity over coming years, driven by the IIJA and IRA.

For its part, Infrastructure Ontario (IO) highlighted its robust pipeline of major infrastructure projects, including 38 projects in pre-procurement and active procurement, which collectively carry total estimated design and construction costs over $35B. Further, IO spoke at length about the recent shift in Ontario and other jurisdictions towards the increased use of collaborative delivery models that promote greater risk sharing, compared to more traditional P3 models that have seen E&C companies assume relatively greater levels of risk.

Multiple companies spoke in detail about the wide range of opportunities they are seeing in the broader earth and environmental sector, including activity related to water, climate change, and energy-transition initiatives. Although specifics were not provided, speakers gave impression that these remain some of the fastest growing end-markets being targeted by participating companies. Additionally, several companies characterized earth, environmental, and sustainability-related work as relatively economically insensitive.

Driven by macroeconomic uncertainties, including the impact of sharply higher interest rates and potentially tighter credit conditions, numerous participating companies received questions about the outlook for activity levels within the property and buildings sector. Although potential risks were acknowledged, in general, participating companies have de-emphasized their exposure to commercial real estate over the last several years. This was accomplished by expanding activities in property and building sub-sectors seen as less economically sensitive such as government buildings, healthcare, data center and asset decarbonization work. Given these diversification efforts, we do not expect a potential slowdown in commercial real-estate activity to have an overly meaningful negative impact on participating companies.

Nearly all participating companies highlighted acquisitions as having a potential role to play in their future growth plans. That said, there was a fair degree of variance surrounding the potential types, sizes, and timing of possible future acquisitions. Growth via acquisition continues to be a key strategic priority for some, whereas most other participants are focused on tuck-ins or looking to be opportunistic in terms of M&A. Several firms highlighted seeing less competition for acquisitions from private equity players, of-late.

Essentially all participating companies highlighted their aim of realizing improved profit margins over time. Although potential margin improvement drivers vary across the group, some of the key levers highlighted include:

• Pricing gains,
• Improved utilization levels,
• Operating leverage,
• Increased levels of self-perform work,
• Technology benefits.

There was general agreement among participating companies that supply-chain challenges and inflationary pressure have eased to some degree over the last year. That said, views on the extent of improvement varied across the group. Our sense coming out of the event is that supply-chain constraints remain a more meaningful challenge for the equipment distributors compared to other participating companies.