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Balfour Beatty back on track

The major restructuring is now paying off
March 14, 2018

After years in the doldrums marked by profit warnings followed by years of losses, Balfour Beatty (BBY) is finally back on track, and with something of a bang. As testament to the success of its Build to Last recovery programme, underlying profit in 2017 more than doubled to £196m, while industry standard margins are expected to be achieved in the second half of 2018.

IC TIP: Buy at 286.1p

The biggest recovery came from the once beleaguered UK construction side, saddled as it once was with lossmaking legacy contracts. These are now water under the bridge, and from the previous year’s £65m loss, the division notched up a profit from operations of £16m.

Group profit would have been even higher without the collapse of Carillion, one of its joint operations partners. Consequently, Balfour made a £44m provision, and there was a further £12m of restructuring costs and £9m amortisation, partly offset by an £18m gain on the sale of Heery International. Crucially, operating cash flow before movements in working capital and pension deficit payments improved from a £58m outflow in 2016 to a £39m inflow.

Analysts at Numis are forecasting adjusted pre-tax profit for the year to December 2018 of £155m and EPS of 20.9p (from £164.8m and 20.6p in 2017).

BALFOUR BEATTY (BBY)  
ORD PRICE:286.1pMARKET VALUE:£1.97bn
TOUCH:285.9-286.3p12-MONTH HIGH:312pLOW: 253p
DIVIDEND YIELD:1.3%PE RATIO:12
NET ASSET VALUE:153p*NET CASH:£335m
Year to 31 DecTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20137.49-35-7.514.1
20147.26-304-43.95.6
20156.96-199-30.2nil
20166.92100.22.7
20176.9211723.73.6
% change-+1,070+11,750+33
Ex-div:19 Apr   
Payment:6 Jul   
*Includes intangible assets of £1.16bn, or 167p a share