Anyone who regularly experiences the joys of public transport in the UK will know the country is in desperate need of infrastructure investment. Recognised as a priority by the Government, this is one area of public spending seemingly set to get a boost, not a cut, in the upcoming Budget.

That spells good news potentially for both long-suffering passengers and the likes of Renew (RNWH:AIM), an engineer providing infrastructure maintenance work.

What separates Renew from most other engineering firms is that it specialises in non-discretionary maintenance and renewal projects, i.e. work that’s essential, not optional.

Its clients – which include Network Rail, the Nuclear Decommissioning Authority and big utilities – must spend money on infrastructure to comply with laws and regulations.

While this provides a positive backdrop for Renew, it still needs to win this work in the first place as providing infrastructure services is still a competitive market.

Fortunately the firm seems to have done a good job of securing work as its latest full year results show 11% growth in revenue to £600.6m, adjusted operating profit up 23% to £38.3m and reported pre-tax profit almost doubling to £27m. There was also a 15% rise in its final dividend to 11.15p per share.

The nature of jobs Renew carries out – in rail, water, telecoms and nuclear decommissioning – involves stringent safety checks in heavily regulated markets.

Subcontracting work is highly common in the construction industry due to the scale of the jobs firms take on but Renew targets lots of lower scale work, so it uses its own staff for its jobs and doesn’t have to outsource, leading to better margins than
its peers.

Its share price has been on a roll recently, soaring 25% to the current 510p level since its full year results in November, perhaps showing the market better understands the company’s risk profile.

But the company is still good value, trading on 12.2 times forecast earnings for the current financial year, placing it bang in the middle of its sector when it comes to expectations.

It’s worth highlighting companies in Renew’s industry are cyclical, and while it’s proving itself better than peers when delivering on contracts and pricing them correctly, failure in this regard is still an ever-present risk.

The company also took on debt significantly in 2018 having bought rival businesses as it looked to expand. But net debt of £10.2m as at 30 September 2019 compared to £21.4m the previous year shows that Renew places a good focus on keeping its balance sheet in check.

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