SMALL CAP IDEA: Hercules Site Services is monitoring infrastructure due to labor shortages

Britain is at a crossroads when it comes to major infrastructure improvements.

As construction continues on Hinkley Point C and Sizewell C, a new fleet of small modular reactors (SMRs) are among dozens of projects promised over the coming decades.

HS2 has also been in the spotlight constantly, with recent reports suggesting that Britain’s new government is considering an ‘HS2 lite’ replacement for the railway’s scrapped northern link.

Water companies are on the verge of new stricter regulations, which will require significant investments from 2025 to repair aging networks.

According to the Infrastructure and Projects Authority (IPA), Britain already had a total of 660 projects in the pipeline across the private and public sectors as of February this year.

These collectively pledged £700-£775 billion of investment over the next ten years, most of which will be in energy, followed by transport, social infrastructure and water.

There is a threat of a labor shortage

However, this wide range of projects will require an ever-increasing skilled workforce, which will need between 543,000 and 600,000 people in the next two years alone, the IPA estimates.

This comes as the construction industry struggles with a growing labor shortage, the IPA said, raising questions about where all these workers will come from.

So it’s no surprise that Hercules Site Servicesthat offers training and labor supply, is on track for a record year.

AIM-listed Hercules said earlier this month that full-year profits would beat market expectations with sales up 24 percent to more than £105 million.

Hercules’ record year

From civil engineering work and rail projects to white-collar jobs and even suction excavator rental, Hercules said it had continued to pursue opportunities throughout the year, leaving the door open for “a lot to look forward to in 2025.”

“It is now widely accepted that Britain needs to upgrade many aspects of its infrastructure,” says CEO Brusk Korkmaz.

‘We realize that having the right talent is crucial for this.’

The company officially opened its Hercules Construction Academy in the West Midlands in January to support the development of such talent.

While it is crucial to tackling Britain’s labor shortage, it would also provide Hercules with a pipeline of workers to deploy across its growing portfolio of projects, Korkmaz points out.

Growing portfolio of major work

Hercules already supplies labor for major projects, including Sizewell C and HS2.

The Suffolk nuclear power station is expected to require at least 20 years of workers, which Hercules is prepared for, having recently opened an office in Saxmundham, close to the site.

Around 600 Hercules workers are currently manning the northern section of the first phase of the high-speed line near Birmingham, with demand reportedly growing week on week.

Hercules is also involved in other work for Network Rail, Transport for Wales and London Underground through a five-year agreement with Balfour Beatty.

And this is before Ofwat’s new five-year regulatory framework for the water sector, AMP8, comes into force next year.

Upwards forward

Hercules’ involvement in high-profile projects has not gone unnoticed, with news that 2024 will be a record year for the company, prompting broker upgrades.

House broker Cavendish called the update “excellent” and raised Hercules’ share price target to 70 cents, predicting an expected gain of 61 percent at the time.

Analysts at investment research group Equity Development followed suit, raising the price target from 60p to 70p.

“Performance is underpinned by Hercules’ own growth initiatives and ability to respond to opportunities as they arise,” Equity Development analysts said.

They also highlighted an £8m fundraising round by Hercules last month, which put the company on track to further capitalize on M&A opportunities.

“We see scope for further outperformance as 2025 progresses, with M&A a clear potential earnings and share price catalyst,” Equity Development added.

Opportunities ahead

That’s not to say that Hercules isn’t already blessed with an abundance of opportunity thanks to the expertise gained from the work it’s already involved in.

In the words of Korkmaz: ‘We are also collaborating with other companies as we become better known in the (rail) sector.’

Demand is expected to increase due to “well-documented issues within the water treatment sector,” he added.

Promises for a fleet of SMRs, alongside Sizewell C and Hinkley Point C, should also ensure Hercules will be in demand well into the next decade.

“Like any infrastructure project, they need labor to build the SMRs,” Korkmaz said.

‘We feel extremely well placed to help the business community and government when the time is right.’

The shares are up 81.8 per cent so far this year to 44.55p. But as the analysts say, the stock could travel further.