TD Securities Infrastructure Services Conference 2024 Highlights

The TD Cowen Insight

Our annual TD Securities Infrastructure Services Conference featured fireside chat discussions with senior management from a group of companies active in the broader Infrastructure Services sector, as well as a panel discussion focused on small modular reactor development within the nuclear sector.

Key Infrastructure Services Themes

Overall Demand Environment Seen as Favourable

Some end-markets were described as being stronger than others, but the overall demand environment was portrayed as favourable by participating companies. In most cases, they are not seeing any notable areas of weakness in their businesses. Regionally, Canada and the U.S. were described by essentially all participants as enjoying relatively healthy demand trends.

Positive Outlook for Infrastructure Investment

Infrastructure-related activity continues to be seen as an area of notable strength across key regions (i.e., the U.S., Canada, the U.K., and Australia). Multiple companies at the conference indicated that they expect Infrastructure Investment and Jobs Act (IIJA) funding in the U.S. to ramp up further over the next several years and remain elevated through 2029. Encouragingly, there was general agreement among participants that the IIJA and associated activity is likely to be unaffected in any material way by the outcome of the U.S. presidential election later this year since it had bipartisan support.

Strong Outlook for Energy Transition-related Work and Broader Environmental Sector

Multiple companies at the conference highlighted energy transition-related work and activity connected to the broader environmental sector as major focus areas offering strong growth opportunities. This includes projects focused on decarbonization, renewable energy, electric grid modernization, EV infrastructure, etc. In the U.S., Inflation Reduction Act (IRA) incentives represent a key driver to energy transition-related work. Meanwhile, various companies noted that there is also considerable support for green energy/energy transition projects in a range of other regions, including Canada, the U.K., Europe, and Australia.

Potential for Infrastructure Policy Changes Due to U.S. Presidential Election

Numerous Republican-leaning states are significant recipients of IRA benefits, which may, in turn, lessen the likelihood that the IRA is scaled back or otherwise unfavourably altered if there’s an administration change. Further, it was suggested that in the event of a Republican win in the upcoming U.S. presidential election, a bias toward protectionism has the potential to lead to an increase in work in certain areas that would be beneficial to E&C companies with U.S. exposure. For example, onshoring/reshoring would likely increase the need for new advanced manufacturing facilities. Such an outcome may act as an offset to any investment/funding gaps created by a possible scaling back of the IRA. Additionally, several companies at the conference spoke very favourably about current and future expected activity levels in the nuclear sector.

Growth Through Acquisition Remains a Focus for Most Companies

Nearly all participating companies highlighted acquisitions as one of their key capital allocation priorities. There was a fair degree of variance, though, related to the potential types, sizes, and timing of possible future acquisitions. The M&A pipeline was viewed as robust by engineering services firms. It was noted that acquisition opportunities include privately-held engineering services firms that struggling with succession planning issues. Most of the other conference participants expressed an interest in supplementing organic growth with tuck-in acquisitions or pursuing acquisitions on a more opportunistic basis.

Driving Improved Margins Highlighted as a Key Priority

Essentially all participating companies indicated that they remain focused on realizing improved margins over time. Among the engineering services companies, there was considerable discussion about the opportunity to achieve improved utilization levels, and to leverage existing resource delivery centers located outside of North America. Some of the other key margin improvement levers highlighted include driving parts and service revenue growth at equipment distributors, increased levels of self-perform work, and leveraging technology tools/solutions.