Panmure Liberum has upgraded Balfour Beatty plc (LSE:BBY) from 'hold' to 'buy' and raised its target price from 500p to 650p, citing stronger earnings momentum, margin improvement, and a deep pipeline of energy infrastructure work.
The analysts increased their earnings per share (EPS) forecasts by 3% for 2025 and 8% for 2026, driven by better margins in UK Construction and signs of recovery in the US business.
They now expect average net cash to hit £1.15bn next year, up from a previous estimate of £950mn. That stronger balance sheet opens the door for further shareholder returns, including a forecast £188mn in dividends and buybacks in 2025 alone.
A £19.5 billion order book and growing momentum in energy projects underpin Panmure’s optimism.
Power-related work now accounts for 41% of Balfour’s pipeline, with major opportunities linked to National Grid’s electricity transmission partnership and the Sizewell C nuclear plant.
Balfour has also been awarded a £833 million contract on the Net Zero Teesside Power project and is bidding for further work through the ASTI framework in Scotland and projects tied to the AUKUS defence pact.
Margins in UK Construction have already reached their 3% target, and Panmure sees further upside. In the US, losses on a problematic highways contract in Texas knocked profits this year, but the non-repeat of that £30 million hit supports the 2026 profit recovery narrative.
The support services business, which includes power transmission, is also growing strongly, with margins moving towards the top of the group’s 6–8% target range.
Despite some pressure on infrastructure asset valuations due to higher real yields, Balfour’s investment portfolio remains a key cash generator.
Management expects annual cash contributions from the portfolio of between £60 million and £140 million out to 2045.
Panmure estimates that cumulative distributions from investments between 2021 and 2025 will total £944mn – equivalent to a third of the company’s market cap.
Valuation-wise, Balfour now trades on a forecast price/earnings multiple of 11.5 times for 2026, a slight premium to peers.
But Panmure argues this is justified by the group’s asset backing and stronger-than-average balance sheet.
Stripping out the investment portfolio, the underlying construction business trades on a P/E closer to 5.6 times.
The shares were up 0.8% at 579p.