Analysts argue that balance sheet strength and earnings visibility across Tier 1 contractors remain underpriced, with Galliford Try, Costain and Kier all rated buy
Galliford Try Holdings PLC (LSE:GFRD, FRA:3WC) has delivered a 328% share price return over five years, making it the standout performer among UK Tier 1 contractors.
And Cavendish believes the sector's broader rerating still has further to run as a £725 billion government infrastructure pipeline and a transformational water investment cycle begin to translate into hard revenue.
The broker's sector note frames the outperformance across the group as a structural shift rather than a cyclical bounce, driven by a fundamental change in how Tier 1 contractors select and price work.
The old model of competitive, single-stage fixed-price tendering that destroyed margins and triggered shock write-downs at companies including Carillion has been steadily replaced by frameworks, two-stage procurement and target-cost contracts, with share prices across the sector rising 170% on average over the past five years against a broadly flat FTSE 250.
Cavendish argues that current valuations, at a sector average of 7.3 times current-year EV/EBIT (enterprise value to operating profit) and 13.2 times price-to-earnings, do not yet fully reflect the improved quality and duration of earnings, nor the structural net cash positions that have quietly accumulated across balance sheets.
The government's 10-year infrastructure strategy, published in June 2025, committed £725 billion of spending and provided the clearest multi-cycle pipeline the sector has seen in a generation, while Ofwat's AMP8 (Asset Management Period 8) determination approved £104 billion of water investment for 2025 to 2030, the largest programme since privatisation.
Cavendish identifies water, defence and nuclear as the strongest end-markets, noting that these verticals carry committed, politically supported spending envelopes where the risk to contractors is typically delay rather than cancellation.
On Galliford Try, which the broker rates buy with a 670p target price implying 25% upside, Cavendish credits consistent framework-led execution and a balanced end-market mix weighted to education, defence, water and highways, with the group tracking ahead of its 2030 margin targets.
Costain Group PLC (LSE:COST) screens as the most attractively valued name in the sector, trading at a 35% to 45% discount to peers on blended 2026 and 2027 EV/EBIT of 6.1 times against a 297p target price, with the removal of pension contribution matching obligations unlocking further headroom for dividends and buybacks.
Kier Group PLC (LSE:KIE), which has risen 63% over the past 12 months, continues to trade at a discount to sector peers on EV/EBIT despite achieving average net cash for the first time in its turnaround, with a 277p target price and the Property division identified as the key medium-term earnings lever as capital is deployed toward a 15% return on capital employed target.