Share prices of quoted firms fell slightly on news of Sunak’s confirmation that leg to Manchester has been scrapped
Listed contractors have said scrapping the rest of HS2 will not affect their forecasts with the country’s biggest builder downplaying worries over the amount of work lost as a result of the decision.
The share prices of Balfour Beatty, Costain, Kier and Keller – which are all working on the first phase of the scheme between Curzon Street in Birmingham and London Euston – all fell slightly on the news that prime minister Rishi Sunak was pulling the plug on the line between the West Midlands and Manchester.
But Leo Quinn, chief executive of Balfour Beatty, whose jobs on the project include building the station at Old Oak Common, said: “The HS2 announcement, whilst disappointing for our industry, has no material impact on Balfour Beatty’s order book.”
He added: “Cancelling phase 2 of such a significant project as HS2 presents challenges to the ability of the industry – and the UK – to upskill, train and retain the generation of talent required to deliver the infrastructure that this country must have.”
In a note, analysts at broker Liberum said: “We think it is unlikely that the cancellation of phase 2 would impact the forecasting horizon for most of the companies in our coverage. Costain and Severfield would likely be the biggest beneficiaries of a green light on Euston. At Kier we see no risk to estimates from HS2.”
Liberum said Costain and steel firm Severfield were the quoted firms which will benefit from the scheme at Euston now going ahead after speculation the railway would start and finish in London at Old Oak Common.
“The main civils contract was originally expected to be worth £1.2bn but, given inflation, we expect that has increased significantly,” the note added.
This part of the job will be carried out by a team featuring Costain, Strabag and Skanska while Liberum said: “The structural steel work on Euston is likely to be very significant and Severfield, as the UK’s largest structural steel provider, would be well positioned to win work there.”
It said HS2 was “less relevant as a financial contributor” to groundworks firm Keller, which has been carrying out work on the railway, and said “delays on HS2 are unlikely to impact Kier for the next two years and we estimate that FY 23 was the peak for Kier in terms of HS2 activity”.
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Liberum’s note also gave an insight into why costs have escalated so much – and explained the industry’s reluctance to take on the risk associated with a scheme like HS2.
“The problem is that inflation, which is particularly marked in building materials, is increasing the cost of the contract,” it said. “Delays in an inflationary environment only increase the cost further. Given that the contract is essentially cost-plus, that increase in cost means an increase in price which is born almost entirely by the taxpayer.
“The construction industry would never have taken this open-ended risk since it simply could not have afforded the downside. And it would not have made sense for the government to award the contract as a fixed-price contract.”
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