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Still plenty of construction work

Spending cuts will make it tough for the construction sector, but some companies will suffer more than others, more notably the smaller private operations that are unable to offer sufficient diversity or adapt their business model.

For the big players like Balfour Beatty, there remain plenty of opportunities to take advantage of. For despite the cuts in public spending, some projects have been given the go-ahead, including £15.8bn of schools refurbishment, nuclear power station construction and a number of rail and road contracts. In fact, Balfour's order book continues to grow and now stands at around £15bn, the equivalent of nearly two years' turnover.

And there are other ways to avoid the worst of the cutbacks. While some capital spending projects are being axed, there is still plenty of work to maintain existing structures. So moving into essential maintenance work has helped to offset the loss of any spending on new projects.

Building up a construction business to offer a one-stop shop for customers is increasingly going to be the right path to take. Establishing a rapport with local authorities will pay dividends as more and more government and local bodies seek to maximise the return on squeezed budgets by outsourcing. Moreover, fears that the government would pull the rug away from public/private partnerships (PPPs) have turned out to be wide of the mark. Carillion, for example, has a portfolio of around 26 PPPs and the construction support services provider is on the shortlist for several more. Investing in these projects has paid off, too, with Carillion maintaining a 15 per cent internal rate of return.

Balfour, for example, is also well protected because around half of group turnover is generated outside the UK. However, diversity can sometime prove problematic, as Keller has found to its cost. As the world's largest ground engineering specialist, Keller doesn't do much work in the UK because most construction companies employ their own in-house specialists, and despite securing business in the Middle East and Asia, the group has been hit badly by the downturn in the US market, which accounts for around 40 per cent of turnover.

COMPANYPRICE (p)MARKET CAP (£m)PE RATIOYIELD (%)1 YEAR PRICE CHANGE (%)LAST IC VIEW
BALFOUR BEATTY3232,2199.23.817.0
KELLER68043713.83.31.9
KIER GROUP1,36351712.64.328.5

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