Balfour Beatty keep bouncing back
Balfour Beatty shares are higher since the company revealed a 69% jump in first-half operating profit last week.
Revenue dipped by 8.5%, but higher margins and lower costs helped the company boost earnings. The interim dividend was upped by 33% to 1.6p, which admittedly isn’t a huge pay-out, but it highlights the company’s ability to generate cash.
The first-half order book jumped by 11%, and the company confirmed the trading environment ‘remains favourable’. The UK government has a large pipeline of infrastructure projects, and this bodes well for the group. The company’s prospects are positive as it is on track to achieve its full-year expectations. Balfour Beatty are either achieving standard industry margins or they are likely to do so in the second-half.
It’s not all good news for Balfour, as the collapse of Carillion – partner in the Aberdeen Western Peripheral Road project – caused the company to write-down £23 million, and that is in addition to the £44 million hit it already incurred.
The impressive first-half figures prompted Berenberg to raise its price target to 360p, from 350p. Barclays upped its price target to 355p from 330p.
Balfour Beatty’s tough turnaround plan is clearly working as the firm was under severe pressure a few years ago, and after much reform, the company posted a 184% rise in annual earnings last year. The UK division swung from a loss of £65 million to a profit of £16 million. This is a far cry from the string of profit warnings that dogged the company in the 2014 to 2016 era.
Balfour previously spread itself too thin and took on contracts that were low margin. Carillion, who collapsed earlier their year, engaged in similar practices. In recent years, Balfour have sold off their operations in Australia, the Middle East, and Indonesia. The firm is now focusing on the UK, US and Ireland. The group has also kept an eye on costs as a part of its restructuring scheme. Balfour confirmed it will complete the Aberdeen Western Peripheral Road project this summer despite the disruption caused by Carillion.
The latest UK construction output report showed that the sector grew by 2.2% in June – its highest level since the end of 2017. The July UK construction PMI report jumped to a 10 month high, so it is clear the British construction sector has recovered from Carillion’s demise. The uptick in construction activity should bode well for Balfour.
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