Ministers 'concealed' they had no money to build bypass - MSP

Freedom of Information documents show Transport Scotland advised ministers on 24 March 2023 that no funding had been identified to take the A96 Nairn bypass into procurement and construction for at least eight years, contradicting long-standing government pledges (the SNP had committed in 2011 to dual 86 miles of the A96 by 2030; full dualling was abandoned in Nov 2024). The revelation raises delivery and fiscal-risk concerns ahead of the Holyrood election, as Transport Scotland reportedly pushed for a reduced ‘refined package’ of works and the government flags that future decisions will depend on the UK Autumn Budget and the Scottish Budget.

Analysis

Market structure: Near-term winners are large, diversified contractors and global materials suppliers able to reallocate capacity elsewhere (e.g., Balfour Beatty BBY, Costain COST, CRH CRH.L) while small, Scotland‑centric contractors and local sub‑contractors (e.g., Galliford Try GFRD, Breedon BREE) face revenue shortfalls as the A96 pipeline is delayed 3–8+ years. Expect downward pressure on regional aggregate demand (estimate 10–20% lower volumes in Highlands over next 3 years) and margin compression for firms that cannot redeploy plant and labour.

Risk assessment: Tail risks include an electoral shock that either accelerates cash injections (fast‑funding surge within 6–12 months) or triggers severe procurement cancellations and litigation wiping 1–5% off revenues for exposed contractors (probability ~10–20%). Immediate catalysts are the UK Autumn Budget and Scottish Budget in the next 7 days; medium term (3–12 months) risk is contract re‑specification and rebidding that raises tender volatility and credit stress for small contractors.

Trade implications: Construct a barbell: small, tactical longs in resilient global names and short selective regional contractors. Example: establish 2–3% long BBY and 2% long CRH (6–12 month horizon) while initiating 1–2% short positions in GFRD and BREE. Use option overlays: buy 3‑month put spreads on GFRD sized to 1% portfolio to cap downside and sell 2–3 month covered calls on BBY to fund premia. Entry window: act within 3 trading days after Scottish Budget; exit on definitive contract awards or if incremental capex >£100m is announced.

Contrarian angles: The market assumes permanent deferral; politically, FOI publicity raises the chance of vote‑seeking front‑loaded spending or smaller targeted bypass awards (Keith/Elgin) within 6–12 months—this would squeeze shorts and reward onshore regional contractors. Historical parallels (regional UK road promises) show delays then lumpier spending; keep position sizes modest (<=3% each) and monitor weekly procurement notices and budget line items for >£50m changes as triggers to reverse positions.

Key Decisions for Investors

• Establish a 2–3% long position in Balfour Beatty (BBY.L) with a 6–12 month horizon; fund by selling 2–3 month covered calls at ~+5–10% OTM to collect premium and cap cost.
• Add a 2% long position in CRH (CRH.L) as defensive materials exposure to offset regional UK capex volatility; hold 6–12 months and trim if UK/Scottish budgets add >£100m incremental infrastructure spend.
• Initiate 1–2% short positions in Galliford Try (GFRD.L) and Breedon Group (BREE.L) to capture downside from Highland project deferral; size combined short <=3% of portfolio and hedge with 3‑month put spreads (buy 10%/sell 20% strikes) to limit tail risk.
• Implement a pairs trade: long BBY (2%) / short GFRD (1.5%) to express relative quality; place trades within 3 trading days after the Scottish Budget and tighten stops if procurement notices award >£50m to regional contractors.
• Monitor catalysts daily: Scottish Budget and UK Autumn Budget (next 7 days) and weekly Transport Scotland procurement notices; if budgets disclose >£100m allocated to A96 corridor, close shorts and re‑weight longs within 48 hours.