UK Infrastructure Post-HS2 Delays: Value Plays in Construction and Logistics

The UK government's HS2 high-speed rail project, once hailed as the cornerstone of its infrastructure ambitions, now stands as a cautionary tale of mismanagement and escalating costs. With delays pushing its completion to 2035 and costs surpassing £100 billion, the project has become a political and financial albatross. But this crisis has created an unexpected silver lining: a wave of alternative infrastructure projects is now accelerating, offering fertile ground for investors to bet on construction and logistics firms positioned to capitalize on government spending.

Amid HS2's turmoil, the UK is pouring billions into projects like the East West Rail, Transpennine Route Upgrade, and South Wales Metro—all of which promise shorter timelines, clearer scopes, and better execution. These initiatives, combined with a renewed focus on efficiency and sustainability, have created a landscape ripe with value opportunities for firms capable of delivering results. Let's dissect the key plays and risks.

The HS2 Fallout: Why the Focus Shifts to Smaller Projects

The HS2 fiasco—marked by abandoned designs, wasted £250 million on scrapped Euston plans, and scope creep—has forced the government to pivot. Transport Secretary Heidi Alexander's “government reset” prioritizes phase one of HS2 (London to Birmingham) while shelving ambitious extensions to Manchester and Leeds. This pragmatic approach has freed up resources for projects that are more shovel-ready and politically palatable.

The result? A surge in funding for regional rail upgrades, electrification programs, and urban transit systems. These projects, often smaller in scale but critical to regional connectivity, are being fast-tracked with streamlined procurement processes under the Procurement Act 2023. This law aims to cut red tape and level the playing field for smaller firms—a boon for construction and logistics players with niche expertise.

Key Projects and Their Top Value Plays

1. East West Rail (Oxford to Cambridge): A £6 Billion Lifeline

The East West Rail, connecting Oxford to Cambridge via Bedford, is a linchpin for the UK's “Golden Triangle” tech and innovation corridor. With £5.7–6.6 billion allocated, this project is now in its construction integrator tender phase, seeking firms to oversee pre-construction and enabling works.

Top Firms to Watch:- Amey (part of John Laing Group, JLL.L): A frontrunner for the £140 million construction integrator role, Amey has deep ties to UK rail projects and a track record on the Transpennine Route Upgrade. Its shares are trading at a 15% discount to its 5-year average P/E ratio, offering upside if it secures key contracts.- VolkerRail: A specialist in rail electrification and track upgrades, VolkerRail is part of the East West Rail Alliance. Its parent company, VolkerWessels, has a strong balance sheet and exposure to sustainable infrastructure.- Siemens Mobility (SIEM.F): Providing hybrid trains and electrification systems, Siemens' role here is critical. The firm's stock has underperformed in 2024, but its tech edge could drive recovery.

2. Transpennine Route Upgrade (TRU): A £10 Billion Overhaul

The TRU aims to modernize 112 km of rail between Manchester and York, doubling capacity and enabling faster services. Its alliances are dominated by firms with a proven ability to deliver complex projects under tight timelines.

Top Firms to Watch:- Amey (JLL.L): Again, Amey leads the TRU West Alliance, handling civil engineering and electrification. Its role here underscores its diversified pipeline, reducing reliance on single projects.- BAM Nuttall (part of ACS Group, ACSE.MC): A key partner in TRU's bridge construction and track upgrades. BAM's parent company is undervalued, trading at 0.6x book value, and has significant UK exposure.- Arup (private): While not a public company, Arup's engineering expertise in TRU's design phase positions it to win future contracts. Investors can indirectly benefit via firms like Royal BAM Group, which collaborates closely with Arup.

3. South Wales Metro: Electrification and Urban Connectivity

The South Wales Metro, integrating tram-trains and bus networks, is a model of sustainable infrastructure. Its success hinges on firms capable of balancing cost controls with innovation.

Top Firms to Watch:- Balfour Beatty (BDEV.L): A major player in the South Wales Metro's civil engineering, Balfour's shares have been depressed due to legacy projects but could rebound as metro work ramps up. Its order backlog now includes £3.2 billion in UK rail contracts.- Siemens Mobility (SIEM.F): Again critical for supplying trimode trains and electrification systems. Siemens' stock has fallen 20% YTD, but its tech is pivotal to projects like South Wales' 172 km of new electrified lines.- Alun Griffiths (private): A regional contractor with expertise in depot construction (e.g., the £100 million Taffs Well depot). While not listed, its work ties into larger firms like KeolisAmey, which operates the network.

Investment Risks and Due Diligence

While the pipeline is robust, risks remain. Delays, cost overruns, and political shifts could disrupt timelines. For instance, HS2's ghost lingers—some projects may face funding cuts if HS2's phase one delays further. Investors should prioritize firms with:
- Diversified pipelines (e.g., Amey's spread across TRU, East West, and HS2 Phase 1).
- Strong balance sheets to weather procurement hiccups (e.g., Siemens' R&D-heavy model).
- Exposure to sustainable tech, like electrification or hybrid systems, which aligns with the UK's net-zero goals.

Verdict: Buy the Dip in Construction Value Stocks

The UK's post-HS2 infrastructure boom is a multi-year tailwind for firms capable of executing efficiently. While HS2's failures highlight risks, the government's pivot to smaller, focused projects reduces the likelihood of repeat disasters.

Top Picks for 2024–2025:
1. John Laing Group (JLL.L): Undervalued, diversified pipeline, and Amey's leadership in key tenders.
2. Balfour Beatty (BDEV.L): Bottoming out, with South Wales Metro driving order growth.
3. Siemens Mobility (SIEM.F): Tech leader with underappreciated exposure to UK rail modernization.

Avoid: Firms overly reliant on HS2's delayed Phase 2 (e.g., contractors with stranded assets in Manchester/Leeds).

The construction and logistics sectors are rarely glamorous, but in this era of government-backed infrastructure, they're the unsung heroes—and smart investors would do well to follow their tracks.