When the government unveiled its ambitious plan in last year’s budget announcement to invest $75 billion dollars in infrastructure development over the next decade, investors of all stripes welcomed this promising replacement for the decline of the mining boom.
On the day of the announcement, the share price of Australia’s largest diversified construction and engineering firm, Cimic Limited (CIM) stood at $38.16.  The stock price climbed to a high of $52.25 by mid-December and levelled off to around $43.20 by mid-April, still a respectable increase of 13% since the announcement.
The projected spending targets infrastructure projects in road, rail, and airports.  The following graph from Deloitte Access provides a dramatic picture of the scope of the expanded expenditures. 

The following pictogram from the government budget website pinpoints the location of major infrastructure projects planned or underway.

There are several ASX stocks with infrastructure development as part of their business models for investors to consider.  For investors interested in developing trends and longer-term opportunities, a new report from Business Insider Australia entitled “THE SMART INFRASTRUCTURE REPORT: Meeting the needs of the future with intelligent investment” expands how we view infrastructure.
The core of the traditional viewpoint of infrastructure is connectivity.  Road, rails, and airports all serve to connect people in transportation networks.  Similarly, traditional electricity, water delivery, and communication networks connect people to needed resources.  The BI report expands traditional “hard” infrastructure thinking to include healthcare, education, and “smart” technologies leading to “connected cities” of the future.  This is not new or original thinking as cities around the world are already adopting smart technologies and the Victorian government acknowledges a broader view of what constitutes infrastructure.
Researching technologies for the smart cities of the future is a daunting task at best.  There are ASX stocks in the Internet of Things (IoT) space working on technologies that would enhance the “connected city” concept.  As you might expect, some investors might see early stage stocks in competitive fields as punters’ specials.  However, here are three stocks on the radar of the investment community with year over year share price gains of more than 100%.
• Elsight Limited (ELS) serves security and surveillance needs with connected video/data capturing, recording, and transmission devices.  The company listed in June of 2017 and is generating revenue but has yet to report a profit.  The share price is up 321% since listing.
• Buddy Platform Limited (BUD) is working on connected lighting, parking, traffic, and building monitoring.  Headquartered in the US, the share price is up 154% year over year.  The stock is in voluntary suspension, pending an announcement.
• Altium Limited (ALU) has been in business since 1985, providing customers with printed circuit boards (PCB) and related software for development of electronic devices.  Today the company’s products are at the forefront of intelligent design of connected devices.  The company is based in the US and recently reported solid Half Year Financial Results, with a 30% increase in revenue and a 51% rise in profit.  The stock price is up 144% year over year. 
Altium is hardly a punters’ special, with explosive share price appreciation over the last five years.

While the global market for IoT is expected to grow from USD$170.57 billion in 2017 to USD$561.04 billion by 2022, how much growth will come from connected cities is unclear.  In contrast, increased spending in “hard infrastructure” projects here in Australia is in place, arguably making investments in stocks to benefit from these projects a safer bet.
Infrastructure stocks can be broken down into three broad categories:
• Builders• Suppliers• Operators
While the builders compete for contracts and may be limited in the number of projects they can handle, suppliers are limited only by production capacity.  Operators, like toll road owners Transurban (TCL), Macquarie Road Atlas (MAQ), Sydney Airport (SYD), and Sparks Infrastructure (SKI) stand to benefit most following project completions.
Common sense would seem to suggest the major ASX building materials suppliers would be the favored choice of more risk-averse investors, but best of breed builders are also worthy of consideration.  
The following table lists two top construction and engineering firms with heavy presence in infrastructure projects and two suppliers offering arguably the most important supply for major infrastructure projects – concrete.  We also included an infrastructure operator – Transurban (TCL) – since that company develops and builds roads as well, usually in conjunction with one of the major construction companies.

Although principally a toll road operator both here and in the US, Transurban also constructs new roads and improves and enhances existing ones.  TCL is the largest toll road operator here in Australia, with 13 roads under management, along with two in the US. The company has six enhancement projects (widening and extending) underway along with construction of two new tunnels here in Australia – the West Gate Tunnel in Melbourne working in partnership with state government – and the NorthConnex tunnel in Sydney.  
On 23 March the company announced the acquisition of the A25 Toll Road and Bridge in Montreal Canada from Macquarie Infrastructure Partners.  The company also has its sites on acquiring the WestConnex road project in Sydney.
There are headwinds possible for the company, despite its admirable growth forecast.  First, as interest rates begin to creep up around the world bonds are becoming more attractive, causing dividend conscious investors to exit the relative safety of infrastructure operators.  Second, the government is considering a change in the tax status of stapled securities, common among infrastructure operators.
Cimic has acquired multiple construction and engineering firms over the past several years and now stands alone as the largest such firm in Australia with a wide range of diversified services serving multiple business sectors.  Prior to the acquisition spree the company was known as Leighton Holdings, in business in Australia since 1899 and now international in scope.
The global exposure and expertise added another layer of diversification to Cimic as the company’s most recent infrastructure contracting award came from the Philippines.  There are more than fifteen operating companies under the Cimic umbrella serving the energy, resources, communication, and infrastructure sectors.
When the decline of the mining boom slammed construction firms operating primarily as service providers to that sector, the broad diversification of Cimic and smaller rival Downer EDI (DOW) shielded investors from some of the pain.

Downer shareholders were less than thrilled when the company went outside its traditional transportation, mining, utilities, and rail business sectors to acquire industrial maintenance provider Spotless Group in August of 2017, with the initial announcement coming in March and the stock price taking a big hit.

The company operates primarily in Australia and New Zealand although it does have a presence in South America, South Africa, and the Asia Pacific region.  The EDI in the company name was added following the acquisition of Evans Deakin Industries, a major provider of rolling stock for railroads.  The company has seven operating divisions:
• Transport Services• Technology and Communications Services• Utilities Services• Rail• Engineering, Construction and Maintenance (EC&M)• Mining• Spotless
Spotless was acquired to expand the company’s business model with the addition of outsourced facility services, including refrigeration, laundry, maintenance, and asset management.  Investors were pleased to learn the Spotless addition was the largest revenue contributor to the company in the Half Year 2018 results, followed by the Transport division and the Utilities division.
Roads and rail account for the lion’s share of public infrastructure spending from the federal government’s $75 billion, supplemented by another $220 billion from state governments by some estimates.
Downer has a decided advantage with its broad range of services for the rail sector, from rolling stock to track, stabling, and railway station construction, to ticketing.
Concrete and asphalt are essential to road building projects, but both are also used in railway construction.  Modern railway tracks no longer rely on the gravel beds of old.  Ballastless slab tracks, replacing the gravel with a solid concrete or asphalt surface on which the tracks are mounted, have replaced gravel.
Adelaide Brighton (ABC) is our largest supplier of concrete products (bricks, blocks, pavers, and retaining walls) with the company’s stock price outperforming that of larger rival Boral Limited (BLD) over the last five years.

Although Adelaide has three operating divisions – Cement & Lime, Concrete and Aggregates, and Concrete Products – the company is close to a pure-play cement and related products producer, heavily reliant on residential and commercial construction.  
Boral has asphalt in it product line and is more diversified than Adelaide Brighton, with Boral USA and recently acquired Headwaters Inc. providing the US market with stone veneers and clay and concrete roof tiles.  In Australia Boral provides gypsum plasterboard and metal framing systems as well a variety of building materials from roofing to windows.  The crown jewel is the construction materials and cement operations. 
The company website lists among its current projects for its building material line of cement and asphalt three roadways; three bridges; two tunnels; and two rail projects.
Boral’s Australian operations are the company’s largest revenue generator, with management crediting infrastructure projects as the key driver.  Boral operates primarily on the east coast, where the company CEO expects the infrastructure boom to last another ten years generating more momentum than the housing boom.
Adelaide and Boral are both benefiting from the continuation of the housing boom and have issued multiple price increases in the face of high demand, with infrastructure products propelling the already robust demand.

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