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Balfour Beatty : H1 Results
Balfour Beatty reported that pre-tax profits (before exceptional items) from continuing operations rose by 18% in the half year to July 2005. Profit before tax from continuing operations before exceptional items was £52m compared to £44m the previous year. Post exceptional items, the company reported a profit of £67m for the half year (H1 2004:£49m).
An exceptional gain of £24m resulted from a claim for damages following the termination of a contract in one of the company’s subsidiaries, Barking Power. The gain was partly offset by exceptional losses £4m and £3m arising from an early settlement of a loan and a premium paid on the purchase of preference shares.
Growth in the half year was driven entirely by the performance of the civil and specialist engineering and services business. All other businesses reported either declining or relatively flat results.
Profits in the civil and specialist engineering more than doubled to £17m(2004: £8m) partly due to reduced losses in its US business. The company’s US business lost £16m this year compared to £18m last year. Performance in other regions was described as “steady” and order intake in the engineering sector was said to be strong. The company won a £380m contract to renew all the gas mains in Greater Manchester as well as a clutch of service contracts from water companies totalling to £700m.
In rail engineering services pre-tax profits dropped to £20m from £23m a year ago following the loss of the maintenance contracts which were taken back in-house by Network Rail. Profits were enhanced by contract settlements in UK rail renewals.
Profits in the investments and developments business (which manages and invests in privately-funded infrastructure projects) were £8m compared to £7m last year.
The building, building management and services business reported a sharp decline in profits, which fell from £14m in the first half of 2004 to £8m in 2005. The company says losses were incurred on a “small” number of construction contracts, as a result of raw material cost inflation between contract and project execution.
The half year figures look reasonable at a first glance but quality of earnings looks poor. Most business lines seemed to have performed poorly and single largest gain seems to have come from a reduction in losses in America. The strong order book (at record £7.4bn, up 9% since year end) is a comfort but declining margins (due to cost increases) need to be watched.
The share trades at 340.25p, on a prospective PE (2005 earnings) of 13.6x at the top of the sector range. The yield is 2.1%.
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