More on Balfour Beatty
Balfour Beatty
Balfour Beatty, the UK’s second largest construction company, reported moderate results for the year to Decmeber 2004. Operating profits rose by 7.4% (before exceptional items) to £173m. Sales were helped by government contracts for schools, hospitals, roads and railways. Exceptional profits of £135 boosted pre-tax profits to £292m - a growth of 116%. The order book is up 17% against the previous year to £6.8bn- approximately 18 months sales.
A good performance in Europe (where operating profits rose 20% to £204m was offset by losses in North America (losses rose by 191% to £35m), resulting in poor overall figures. The North American losses seem to stem largely from a poor performance of Balfour Beatty Rail Inc although the reasons for this have not been explained.
Balfour Beatty is fifteenth largest in its industry globally in the world, it is very strong in infrastructure contracts and in PPP and PFI contracts.
In the investments and development division which earned around a third of the company’s operating profits last year, the acquisition of 100% ownership (Balfour Beatty previously owned 67.8%) of Connect Roads (responsible for the design and build, financing, operation and maintenance of the A50 in Derbyshire, A30/A35 in Devon and Dorset and the M77 in Scotland) and a full year of Metronet profits (which contributed £10m in operating profits as at the half year, up 155% on last year) will boost earnings.
In the building sector (28% of last years operating profits), the company has won a string of good contracts including some large new PPP schools and healthcare projects in Birmingham, Scotland, Nottinghamshire and Yorkshire.Good projects have also been secured in both the gas and water sectors, and in road management and maintenance. In the company’s US operations, the poorly performing heavy marine engineering business is being closed.
Balfour Beatty’s rail business (25% of operating profits) increased workload for the London Underground and it claims “satisfactory” performance by the plant and track systems businesses. The loss making US business, Balfour Beatty Rail Inc has been reorganised and downsized.
The strong order book of £6.8bn represents nearly eighteen months sales, with a further £1bn of orders at ‘preferred bidder’ stage, effectively locks in steady short-term growth. The company is well positioned in its markets, particularly in the UK and the growth prospects still seem good, in marked contrast to the rest of the sector. This years growth has been moderate, dragged down by losses in its North American operations, which is a concern especially since this has not been adequately explained. Trading at 318.5p, the stock is on a prospective PE of 12.7× is at the top of the sector range which demands a stronger level of growth next year than seen in the current year. There should be little difficulty achieving solid growth in European operations but North American losses may be a drag on earnings. The prospective yield is 2.3%
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