The collapse of Carillion highlights the desirability of ‘quality of earnings’ and sound treasury management. These lessons haven’t been lost on infrastructure peer Balfour Beatty (BBY), which booked a fivefold rise in underlying profits to £47m, despite a 9 per cent fall in revenue. A 46 basis point increase in the gross margin suggests that efficiencies continue to build under the Build to Last programme, but residual contracts continue to drag on earnings.
Carillion casts a long shadow. The UK construction business was hit by a further £23m loss on the Aberdeen Western Peripheral Route (AWPR), largely a consequence of missed deadlines as part of a joint venture with Galliford Try (GFRD). However, a third of that figure was attributable to extra liabilities that Balfour was forced to take on following the collapse of Carillion, which had been the third joint-venture partner on the bypass.
The balance sheet is looking in better trim, with net finance costs decreasing to £10m (from £17m in 2017), as the group pares back its loan book and redeems its bonds. Nonetheless, there was still a £31m cash inflow at the half-year mark.
Bloomberg consensus gives pre-tax profit of £143m for the December year-end, with EPS of 14.3p, rising to £182m and 19.2p in 2019.
| BALFOUR BEATTY (BBY) | ||||
| ORD PRICE: | 290p | MARKET VALUE: | £2bn | |
| TOUCH: | 289-290p | 12-MONTH HIGH: | 319p | LOW: 253p |
| DIVIDEND YIELD: | 1.4% | PE RATIO: | 9 | |
| NET ASSET VALUE: | 178p* | NET CASH: | £38m | |
| Half-year to 30 Jun | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2017 | 3.54 | 12.0 | 2.00 | 1.2 |
| 2018 | 3.22 | 50.0 | 10.1 | 1.6 |
| % change | -9 | +317 | +405 | +33 |
| Ex-div: | 4 Oct | |||
| Payment: | 30 Nov | |||
| *Includes intangible assets of £1.2bn, or 173p a share. | ||||
