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Construction firms struggle to build momentum Add to ...

Aecon Group Inc. recently announced a new joint-venture contract to build a water supply tunnel under the Fraser River in Vancouver, serving up a dash of hope to shareholders who have watched the stock flounder.

For the most part, though, the owners have been dismayed. And that’s an industry-wide trend. During the recession, infrastructure and construction firms were hyped as darling investments because government money was supposed to prop them up. Yet ultimately they never gained any traction.

Even with an economic recovery well under way, the firms are still suffering. Over the past year Armtec Infrastructure is down about 25 per cent while competitor Aecon is down about 15 per cent.

Last fall The Globe and Mail took an in-depth look at these names and found three main causes of poor performance: problems with public money, lower margin projects and delays.

First, even though the government coughed up stimulus funds, private sector projects have historically accounted for 60 to 70 per cent of the sector’s business. So the Conservatives’ Economic Action Plan really couldn’t help all that much.

Second, because so many proposed projects died during the downturn, more firms bid for fewer new contracts. That lowered the margins on those that were awarded.

Finally, the delays pretty much speak for themselves. The construction industry is notorious for them, so even the projects that were awarded still may not hit construction firms’ bottom lines.

Six months later, the big picture isn’t any more promising. Although some people expect a turnaround to eventually flourish, analyst Frederic Bastien at Raymond James thinks investors may have to wait a year or two. That’s a pretty long timeout.

Still, Mr. Bastien sees hope on the horizon. In Aecon’s case, the new contract is encouraging because infrastructure is the company’s sweet spot, and more projects like this one could build some momentum.

Follow on Twitter: @timkiladze

 
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