These three UK shares will prosper under Trump the Builder

Sales of spades and shovels will go through the roof if Donald Trump's masterplan for increased infrastructure spend gets the thumbs up from Congress. We'll find out in two weeks' time. If things work out, a number of British firms stand to benefit in a big way.

Trump made it to the White House on a promise to 'Make America great again', and to tackle a jobs crisis caused by years of industrial decline in the country's vast dust bowl. He wants to cut taxes and reduce financial regulation, too, but his blueprint for $1 trillion (£805 billion) of investment in infrastructure was crucial.

His inaugural State of the Union address to Congress on 28 February will be critical, confirming either that Trump's expensive plan has the backing of politicians, or that he's decided to scale back his ambitions to guarantee safe passage through Congress.

Markets clearly assume he'll get the green light

Equipment rental giant Ashtead is perhaps the most high profile beneficiary. Making a huge slug of its money in the US, where Trump wants to mend roads, fix bridges and build a wall to block out Mexico, has sent its share price up 38% since the president's election victory.

On track to extend its run of record highs to a sixth session Thursday, Trump has been responsible for swelling the value of Ashtead by £2.4 billion in the past three months.

But this is not all about Ashtead. There are other firms that will do well once work begins and which have not received the same air time.

"Our analysis suggests that material levels of forward funding have already been put in place, which should accelerate investment from 2017 onwards," writes Christen Hjorth, an analyst at Numis Securities.

"Furthermore, we believe that, if enacted, Trump's pre-election infrastructure plan would stimulate significant incremental investment. We would put this in context with a US construction market that remains below long-run average levels on a relative basis, with lead indicators suggesting a continuation of positive momentum."

Hjorth points out that a $305 billion highway bill passed in December 2015 already gives five years of certainty so that US States and local government can plan and undertake long-term complex projects.

Then, as America went to the polls on 8 November, they were also asked to back a further $200 billion of spending on roads and other public transit measures. Seven out of ten were passed, including more than half a dozen 'mega infrastructure projects' in places like Los Angeles, Seattle, San Francisco and Atlanta.

Based on increased federal and State funding, London-listed Irish building materials giant CRH now expects a 21% increase in infrastructure spend in its key States over the next five years versus the previous five years.

So, US taxpayers have sent a clear signal that they are willing to pay for this investment through higher taxes or greater borrowing by either State or local administrators.

Trump's tax plan – proposing a cut in the business tax rate form 35% to 15% - could be hugely significant, too. If it happens, Numis thinks a US business's net income could increase by almost a third. It says:

"In our view, if enacted, this could have a substantial impact on the valuation of US-exposed companies."

Three ways to pay the theme

Numis thinks there are three potential routes for investors to play this theme: liquid, lower risk plays like CRH; US exposure positive, but not a key short-term driver, which includes Balfour Beatty; and US-focused, but infrastructure exposure limited companies like Tyman.

CRH makes over 40% of group cash profit (EBITDA) from US construction activity. Numis tips the firm to make €3.53 billion (£3 billion) in 2017, so that's over €1.4 billion.

Its share price is up 39% since the beginning of 2016, driven by operational performance, a weak pound, and anticipation of Trump's spending hike.

They now trade on 17 times forward earnings, a big premium to Numis's sector coverage, but still only level with big-hitter Wolseley and a discount to large US-focused peers, like Cemex, Martin Marietta and Vulcan Materials.

Numis assumes CRH makes almost €4.7 billion in 2020, increasing earnings per share (EPS) to 283 euro cents from an estimated 185 cents in 2017. Using a price/earnings (PE) ratio of 14 generates a price target of 3,105p, up from 2,800p before.

Implying capital upside of about 13%, Numis upgrades from 'hold' to 'add'.

Balfour Beatty

Balfour Beatty is the 12th largest domestic construction contractor in the US. It also does business in the residential sector and the road, rail and water and wastewater treatment markets.

US work generates about 41% of group revenue and 22% of operating profit. Numis values Balfour's investment portfolio at over £1.5 billion, or 224p per share. The shares currently trade at 275p and Numis has a price target of 320p.

However, add in the low-margin Services business and applying a range of PE ratios gives multiple outcomes. Numis highlights "the most realistic share price outcome based on our view of likelihood of margin outturn and Balfour's historic valuation."

Apply a PE of 10 to the Services division gives a potential target price of 369-422p. At 12 times it's 390-451p. However, "upside in the shares relative to the current share price would be 40-70% by 2018 estimates from here."

Tyman

Finally, there's Tyman, perhaps little known among UK investors but still the largest provider of door and window accessories in the US with 30-35% of the residential market. Over half its revenue and even ore profit is made in the US.

"Despite the fact that Tyman's non-UK exposure led to forecast upgrades over 2016, the group's share price has underperformed relative to our peer group and the wider market," moans Numis's Hjorth. "As a result, Tyman now trades on a 2017 PE ratio of 12 and dividend yield of 3.6%, which compares to 13 and 3%, respectively, for [Numis's] Builders Merchants and Materials peer group."

The broker recently rated Tyman shares as 'add' and said they could be worth 326p, implying double-digit upside. It could be even more, admits Numis, "should there be an improvement in US construction activity and/or a reduction in the group's effective tax rate."

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.