Balfour Beatty ups profit forecasts as it defies construction gloom
Balfour Beatty has boosted its earnings and cash flow targets, as the construction firm’s “real momentum” defies wider gloom facing the sector.
The group, which works with the government on major infrastructure projects, has seen the value of its order book jump by 17 per cent to £22.9bn in the six months to June, as its revenue increased by eight per cent to £5.6bn.
This revenue boost was driven by rising demand in US housebuilding and the UK’s power industry, the firm said.
The FTSE 250 group lifted its earnings targets from low single to high double-digit growth and hiked the upper limit of its net cash forecast from £1.5bn to £1.7bn.
The infrastructure giant saw its underlying profit grow by 42 per cent to £153m in the period, though its headline pre-tax profit slipped by two per cent to £129m.
Phillip Hoare, the firm’s chief executive, said: “Balfour Beatty enters the second half with real momentum.
“Our strong first-half performance reflects the quality of our business, the discipline of our execution and, above all, the exceptional contribution of our people in delivering for our customers.”
The group’s upbeat trading update defies the wider gloom facing the UK’s construction sector, as housebuilders and material suppliers warn of rising costs and falling private-sector demand.
Balfour Beatty leans on government contracts
On Tuesday, leading housebuilder Bellway urged the government to cut stamp duty to stimulate construction.
Last month, the boss of property portal Rightmove said the country’s housebuilders face conditions “among the most difficult experienced since the global financial crisis”.
But Balfour Beatty pointed to growth in the UK’s energy, defence and transport infrastructure sectors as a key driver of its revenue gains.
“These markets are supported by strong funding commitments and enduring customer demand, providing attractive growth opportunities over the near to medium term,” the group told shareholders.
The strength of demand for these infrastructure projects means Balfour Beatty can be “disciplined and selective” in its choice of work, the firm said.
Major contracts won by the firm in the year so far include a £325m power transmission project in Scotland, a £315m road maintenance scheme in Warwickshire and $350m (£259m) in US data centre orders.
“We expected a strong performance and Balfour Beatty delivered again,” analysts at Peel Hunt said, adding that the firm’s revenue visibility “continues to drive a higher quality of growth.”
Alex Pugh, an analyst at Freetrade, said the group has managed to avoid the woes facing private-sector housebuilders by focusing on demand “in areas where spending is hard to avoid: power networks, transport, defence and US buildings”.
“This is a company in the right place at the right time. […] The balance sheet is doing some heavy lifting too. Strong cash generation means Balfour can fund growth and still keep investors sweet with dividends and buybacks.”
Balfour Beatty shares rose more than eight per cent on Wednesday, to 942p.