TRG | The Bottom Line – 7/21

TRG this week initiated coverage on Construction Partners (ROAD), a company benefiting from a structural U.S. population shift to “smile states” and the passage of significant U.S. and state funding initiatives supporting a 5+ year runway for infrastructure and private construction projects. ROAD is a civil infrastructure company that specializes in the maintenance and construction of roadways, public funded projects, non-res site work, and other specialty services across the Southeast. In short, ROAD is in the business of building infrastructure. The company prefers to expand to adjacent markets versus leapfrogging to geographies outside core competencies. This strategy continues to play into ROAD “sticking to their knitting” and remaining focused not only from a services/product standpoint but also a geographic growth perspective. The company historically has grown revenues ~18-20% per year with a balanced mix of organic and inorganic growth. A central philosophy is consolidating markets to create new organic growth opportunities (i.e., Ongoing infrastructure maintenance, greenfields, etc). There is a certain level of spend that is expected from DOTs and other end markets in locations where ROAD is the #1 or #2 player in a market with 2-4 competitors, supporting a recurring revenue base from ongoing maintenance post the construction of any new road/bridge.