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Balfour Beatty is coming good

The infrastructure specialist is now running a tight ship, as improving margins demonstrate
August 17, 2017

Perhaps the key point coming out of Balfour Beatty’s (BBY) half-year results is that it remains on target to achieve industry standard margins in the second half of 2018; that’s slightly earlier than previously projected.

IC TIP: Buy at 286.2p

Following a root-and branch-restructuring in the wake of three years of losses, the focus remains on simplifying and focusing the group. This has included getting out of the Middle East and sticking to more selective bidding in order to preserve margins.

The biggest advance came in UK construction where the previous year’s first-half underlying operating loss of £69m was turned into a £2m profit. The previous loss related to legacy contracts, which are still being worked through to completion. And, while underlying revenue fell by 2 per cent to £975m, better risk management and fewer fixed price contracts are having a positive effect.

For the group as a whole, strong cash discipline and cost control lifted net cash from £115m a year earlier to £161m, even though there were no profits booked from asset sales, as management became more selective on disposals.

Outside the UK, US revenue grew by a fifth, lifting underlying profits from £12m to £17m. And the 0.9 per cent margin is well on its way to reaching the 1-2 per cent target.

Analysts at Numis are forecasting adjusted pre-tax profits of 95m and EPS of 12.9p for the year to December 2017 (from £60m and 7.1p in 2016).

BALFOUR BEATTY (BBY)  
ORD PRICE:286.2pMARKET VALUE:£1.97bn
TOUCH:286-286.3p12-MONTH HIGH:299pLOW: 240p
DIVIDEND YIELD:1.0%PE RATIO:82
NET ASSET VALUE:110p*NET CASH:£161m
Half-year to 30 JunTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20163.32-15.0-1.30.9
20173.5412.02.01.2
% change+7--+33
Ex-div:05 Oct   
Payment:01 Dec   
*Includes intangible assets of £1.18bn, or 171p a share