Conservative win would hit infrastructure shares

By Simon Falush

LONDON (Reuters) - An expected election victory for the Conservatives next year should hit infrastructure firms as government spending tumbles, while outsourcing groups and some defence contractors may gain.

Britain's budget deficit is forecast to reach a record 175 billion pounds or 12 percent of gross domestic product -- bigger than most leading world economies -- and how to cut it is a key political theme in the run-up to an election due by June next year.

All major parties promise deep cuts in public spending, with the Conservatives seen as the party most likely to go through with the biggest cuts.

A YouGov poll over the weekend showed support for the Conservatives at 41 percent, 11 percentage points ahead of the Labour party, while other polls have also consistently put the Tories in a commanding lead.

"Any public spending-related area is likely to be vulnerable for sure. Everything's on the agenda and infrastructure companies attract a lot of government spending," said Grahame Exton, fund manager at Tilney Investment Management in Liverpool.

He cited engineers WS Atkins (ATKW.L), Invensys (ISYS.L) and Balfour Beatty (BALF.L) and building group Carillion (CLLN.L) as examples of companies which were likely to see revenues take a hit as government departments like transport and health severely cut spending.

"A Conservative government would be more negative for firms that rely on public spending such as transport or health contractors and consultants," said Azad Zangana, European economist at Schroders.

The Conservatives pledged this month to cut spending by 23 billion pounds by 2015 by freezing public sector pay, trimming benefits and finding efficiencies if elected next year.