With over four-fifths of underlying revenue derived from construction services, Balfour Beatty (BBY) is seeking to distinguish itself in an industry notorious for wafer-thin margins and overstretched balance sheets. The first half of 2019 has shown promise, with underlying operating profit in UK construction more than tripling to £17m on the back of a 1.2 percentage point margin expansion to 1.7 per cent. The group is guiding to a 2-3 per cent margin for the full year, meeting the so-called “industry standard”.
Meanwhile, earnings growth in US construction came in at 12 per cent to £19m with a stable 1.1 per cent margin. With 80 per cent of revenue derived from the general buildings market, several mixed-use project wins have helped expand the overall group order book by 5 per cent since the year-end, to £13.2bn.
With the conclusion of the Area 10 highways maintenance contract and lower power transmission and distribution volumes, underlying support services revenue declined by 7 per cent to £503m. But a 0.5 percentage point margin increase boosted underlying operating profit by 6 per cent to £18m. The group has secured an 80 per cent share in Network Rail’s £1.5bn central track alliance and will develop and deliver rail infrastructure over a 10-year period.
The 2018 full year saw a £229m working capital outflow on the back of significant cash outflows on the Aberdeen Western Peripheral Route (AWPR) project, lower US construction revenues and faster supply chain payments. With the AWPR completed in February and a US recovery, Balfour saw an £11m working capital inflow during the half, contributing to a swing to £89m of cash generated from operations. On the back of an 80 per cent jump in average net cash to £290m, the projected £280m-£300m for the full year is £50m higher than previously guided.
Peel Hunt expects adjusted pre-tax profit of £165m and EPS of 21p for the full year, rising to £196m and 24p in 2020.
| BALFOUR BEATTY (BBY) | ||||
| ORD PRICE: | 223p | MARKET VALUE: | £1.54bn | |
| TOUCH: | 222.6-223.2p | 12-MONTH HIGH: | 302p | LOW: 192p |
| DIVIDEND YIELD: | 2.4% | PE RATIO: | 14 | |
| NET ASSET VALUE: | 177p* | NET DEBT: | 11%** | |
| Half-year to 28 Jun | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2018 | 3.22 | 50.0 | 10.1 | 1.6 |
| 2019 | 3.40 | 63.0 | 6.7 | 2.1 |
| % change | +6 | +26 | -34 | +31 |
| Ex-div: | 24 Oct | |||
| Payment: | 06 Dec | |||
*Includes intangible assets of £1.2bn, or 171p a share **Includes £120m of lease liabilities | ||||
