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Balfour Beatty to get double-digit boost from US tax changes

Last updated: 13:05 18 Jan 2018 GMT, First published: 12:48 18 Jan 2018 GMT

construction engineer on site
The construction group digs the US tax changes

Balfour Beatty PLC (LON:BBY) said Thursday it anticipates a double-digit reduction of its US tax rate as a result of changes enacted by the US Congress, giving its stock a healthy boost.

The Tax Cuts and Jobs Act cut US federal corporate income tax rates to 21% from 35%. After a preliminary assessment, the engineering and construction group now expects an effective tax rate on US earnings to be about 26%, down from about 40%, for 2018 and beyond.

READ: Balfour Beatty sells additional stake in Connect Plus

The FTSE 250-listed company also said it expects 2017 earnings to benefit from a non-underlying, one-off, non-cash credit from the revaluation of US deferred tax liabilities amounting to about £20mln.

Valuation of the company’s investments portfolio will increase by approximately £95mln.

The group is scheduled to report 2017 full-year results on March 14.

Shares were up more than 2% to 2,976p in midday trading.

A post-Carillion world

Analysts weren’t surprised by the positive effects of the tax reduction, but did use this morning’s announcement to weigh in on the ripple effects of the Carillion collapse on the wider construction sector.

In a research note, Liberum analysts wrote that the Carillion’s downfall will “play to Balfour's financial strength” as many construction companies had contingency plans in place. “They are already well advanced in taking in new work, particularly in Rail, although Road will be harder given their leading share.”

READ: Balfour Beatty shares move higher as it sells stake in M25 operator

Separately, Numis analysts pointed to the company’s US exposure and strong balance sheet as reasons to maintain their ‘buy’ rating and 3,000p target price.

“US exposure being a major part of the group's operational base plus a UK business where operational improvements will take place alongside the strongest balance sheet in the sector are important investment features in the post-Carillion world and back up our positive investment case,” Numis analysts wrote.

-- Adds commentary from Numis and Liberum analysts, updates share price -- 

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