ii view: popular Balfour Beatty now de-risked and diversified

This construction company comfortably outperformed the FTSE 250 index in 2022, but what will 2023 bring?

Full-year trading update to 8 December 2022

• Expects revenue up around 5% year-over-year (FY2021: £8.3 billion)
• Expects order book to be up around 5% (FY2021 £16.1 billion)

Chief executive Leo Quinn said:

"We continue to expect a strong full year operational and financial performance. Looking to 2023 and beyond, our improved, de-risked and diversified order book gives us confidence that we will continue to make progress in delivering profitable managed growth."

ii round-up:

Balfour Beatty (LSE:BBY) is a construction and support services company which also sometimes invests in infrastructure projects. 

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It operates largely in the UK and US with smaller operations in Hong Kong and the rest of the world. 

Previous work has included the UK’s biggest road project, the £1.5 billion A14 improvement scheme, along with the 12.5-mile $429 million North Metro Commuter Rail line in Colorado, USA.

For a round-up of this latest trading update announced on 8 December, please click here. 

ii view:

Founded in 1909, Balfour today employs around 24,500 personnel. As of its first half results, the US generated its biggest slug of sales at around 51%, followed by the UK at 49% and the rest of the world the balance. In sector terms, construction leads at around 83% of revenues, followed by support services at around 14% and infrastructure investment the small balance.   

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In recent years, Balfour has been pursuing a transformation programme. Bidding for contracts has become more selective and moves to reduce risk have been made. Fixed price contracts for construction have been reduced, giving it increased flexibility.  

For investors, the economic outlook is highly uncertain and stretched government finances following both the pandemic and a consumer energy crisis may leave politicians less inclined to invest in infrastructure. Costs for businesses generally have been rising too. 

On the upside, both the order book revenues are expected to improve in full-year 2022, with the reopening of China following the pandemic potentially good for its Hong Kong business. Management’s transformation programme has continued, with net cash now held - a core management indicator, proving ahead of previous hopes. The shares trade at their highest in over 10 years and still offer a forecast dividend yield approaching 3%. 

On balance, and despite grounds for some caution, a focus on cash generation and shareholder returns including share buybacks is likely to remain appealing to many investors.  

Positives: 

• Transformation programme
• Focus on shareholder returns

Negatives:

• Rising costs
• Uncertain economic outlook

The average rating of stock market analysts:

Strong buy