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Balfour Beatty plc

Balfour Beatty raises full year guidance as it pockets gains from disposals

"The actions we have taken since the start of 2015 have created a strong foundation for the future," said Balfour Beatty chief executive Leo Quinn

Balfour Beatty
Balfour Beatty has strengthened its balance sheet

Balfour Beatty PLC (LON:BBY) raised its guidance for the year following the disposal of further assets from its infrastructure investments arm this month as part of a wider restructuring plan.

The infrastructure group said it estimates profit from disposals will amount to about £65mln so now expects its full-year performance to be ahead of its previous forecast.

Following the disposal of its interest in Fife Hospital for £43mln in September, the group expects to sell an 80% stake in the Edinburgh University student accommodation project for £24mln.

Stronger balance sheet

The company also lifted its estimates for 2018 average money net cash to £185mln from the previous £140mln to £170mln range predicted.

The group said it had strengthening its balance sheet after completing the repayment of its £252.7mln convertible bond from available cash resources, which has reduced gross debt by 45%. Net cash is expected to be broadly flat from the prior year.  

READ: Balfour Beatty aims to reassure on debt situation, says completed repayment of £252.7mln convertible bond

At year-end, the order book is forecast to be £12bn, up from £11.4bn last year.

Revenue in the second half of the year is likely to be flat compared to the first half when revenue fell to £3.8bn from £4.2bn last year.

Under its so-called “Build to Last” strategy, the firm is being selective about the contracts it takes on. Balfour Beatty said the contracts must be on the “right terms and at appropriate margins, which reflect the bidding discipline and risk management introduced under Build to Last”.

Margins across businesses to meet industry standards

Its UK construction division is estimated to deliver second-half margins of 2-3%. The Aberdeen Western Peripheral Route project the company is working on with Galliford Try is expected to be completed this year.

Following the collapse of Carillion in January, Balfour Beatty and Galliford Try became the remaining joint venture partners in the project. 

In the US construction unit, second half revenue is projected to be in line with the first half and profit from operations is forecast to show further improvement, meeting the industry standard target range of 1-2%.

Profit from operations in the support services business is expected to grow with the margin in line with the 3-5% industry standard target range. A strong performance in transportation, particularly the road maintenance unit, has been partly offset but by weakness in utilities.

READ: Balfour Beatty hikes interim dividend 33% as it sounds confident note on outlook

“We are on track to deliver our Build to Last Phase Two goal of achieving industry standard margins in all earnings based businesses in the second half of 2018,” said chief executive Leo Quinn.

"The actions we have taken since the start of 2015 have created a strong foundation for the future. “

He added: “We have consistently invested in our capabilities, systems and leadership while de-risking the business, strengthening the balance sheet and selectively building the order book.

"Going forward, we aim to drive market-leading performance by using the disciplines we have instilled to translate Balfour Beatty's expert capabilities into long-term profitable growth."  

Shares rose 3.6% to 255p in morning trading.

Balfour Beatty a 'clear buy', says Peel Hunt 

Peel Hunt said the stock is a "clear buy within an undervalued sector".

"In common with the wider sector, the shares have been under considerable pressure," it said. 

"However, it is clear that the current management team has successfully moved into the final Phase of the Build to Last programme (achieving premium industry margins and maximising portfolio value).

"We sense with the current market backdrop and momentum there could be scope for further strategic and operational outperformance."

Quick facts: Balfour Beatty plc

Price: £2.29

Market: LSE
Market Cap: £1.58 billion
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