Deutsche Bank has lifted its price target for Balfour Beatty plc (LSE:BBY), to 1,100p from 990p, with analysts describing an “excellent” first half that led to upgraded full-year guidance.
The bank repeated a Buy rating, whilst analysts pointed to power growth running ahead of expectations, and improving contributions from the group’s US construction business.
DB analyst Jonathan Coubrough, in the note, highlighted the end of Balfour Beatty’s Military Housing monitorship, which removes a cost overhang and could allow the group to extract greater value from its portfolio.
The German bank has raised its earnings forecasts by around 5%, alongside higher cash expectations, feeding through to the 11% increase in its sum-of-the-parts valuation.
“We expect Balfour Beatty to continue to offer one of the best total shareholder returns in our coverage,” Coubrough said, forecasting a 9% compound annual increase in pre-tax profit over three years alongside a 7% distribution yield.
Balfour Beatty on Wednesday raised its full-year profit guidance after a first half in which its loss-making American construction arm swung back into the black.
The company now expects low double-digit percentage growth in profit from operations at its earnings-based businesses, up from previous guidance of high single-digit growth.
It also lifted its average net cash guidance by £200 million to a range of £1.5 billion to £1.7 billion, and raised expected net finance income to between £35 million and £40 million, from £28 million to £32 million.
The upgrade was underpinned by the US construction division, which delivered £22 million of underlying profit in the six months to June against an £11 million loss a year earlier.
That turnaround reflected growth in the buildings business, which serves data centre and commercial customers, alongside reduced losses in civils, the roads and bridges operation that has weighed on group performance for several years.
