ii view: Balfour Beatty raises cash forecasts

by Keith Bowman from interactive investor |

Construction company Balfour Beatty's focus on cash builds as it hikes the dividend by 31%. 

Half-year results  

  • Revenue up 1.2% to £3.88 billion
  • Adjusted pre-tax profit up 14.3% to £64 million
  • Average net cash of £290 million (2018: £161 million)
  • Interim dividend up 31% to 2.1p per share
  • Full-year guidance maintained

Chief executive Leo Quinn said:

"This is another strong set of results - increasing profits backed by a strong cash performance, plus carefully managed growth in our order book. Today, the group's geographic and operational diversity underpins our risk management, with over 50% of our business and Investments portfolio assets outside the UK. Combined with the strength of our balance sheet and cash flows, this positions Balfour Beatty to create and return future value to shareholders."

ii round-up:

Balfour Beatty (LSE:BBY) finances, develops, builds and maintains complex infrastructure such as transportation, power and utility systems, and social and commercial buildings.

It employs 26,000 people in the US, UK and Hong Kong, with America accounting for over 50% of construction revenue. Current projects include a $625 million joint venture to reconstruct and improve the 'Southern Gateway', an 11-mile stretch of road in Dallas, and a $697 million contract to electrify the 52-mile Caltrain rail corridor between San Francisco and San Jose, laying the foundations for the future operation of high-speed trains.

Balfour reported solid progress in these half-year results. 

Increased project selectively and a focus on cash generation saw average net cash held jump by 80% and the full-year estimate raised by £50 million to between £280 and £300 million.

The order book increased by 5% to £13.2 billion. 

Less favourably, an outside investigator was appointed in relation to allegations of misconduct regarding the processing of property maintenance work orders and related incentive fees at two US Air Force bases. 

The share price was up over 8% in early UK stock market trading. 

ii view:

Balfour offers both business and geographical diversity, operating across construction services, support services and infrastructure investments.  

The transformation of the company continues to be measured against its Build to Last goals of Lean, Expert, Trusted and Safe, using cash flow and profit from operations, employee engagement, customer satisfaction and zero harm, respectively.

Cash remains Balfour Beatty's compass and ultimately the most reliable barometer of financial performance. During 2018, the group had average net cash of £194 million (2017: £42 million).

For investors, sentiment around construction has been damaged by problems at Kier Group (LSE:KIE), and Balfour's share price has fallen sharply over the past six months. News of a misconduct investigation injects some caution, too. However, it's tone in these results is optimistic, and a prospective dividend yield of around 3% covered over three times by earnings offers appeal.

Positives: 

  • Increased full-year average net cash guidance
  • Gross debt reduced by over 40% during 2018

Negatives:

  • Allegations of misconduct could result in future exceptional costs
  • Has exposure to Hong Kong via a 50:50 joint venture

The average rating of stock market analysts:

Buy

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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