- First half earnings beat estimates
- Order book reaches £17.7 billion
- Full-year margins seen topping forecasts
Shares in Balfour Beatty (BBY) leapt 10% to a 12-month high of 321p after the construction and infrastructure group posted a strong set of interim results and raised its full year outlook.
On the back of a 42% increase in underlying first-half profits, the board now expects margins to be above its previous expectations.
STRONG FOUNDATIONS
Balfour Beatty is a direct beneficiary of increased UK and US spending on infrastructure as governments attempt to drive economic growth after the pandemic.
The UK has set aside £650 billion of funding over 10 years, an increase of £110 billion on the previous budget, for improvements to roads, railways, power networks, schools, hospitals and telecom networks.
The firm is already a major contractor on the HS2 rail project, the Hinkley Point nuclear power station, and road and power improvements including a new electricity interconnector between Britain and France through the Channel Tunnel.
The $1.2 trillion US Infrastructure Investment and Jobs Act provides for $630 billion of funding for roads, bridges, public transport and energy projects over the next five years.
This represents a doubling of the amount set aside in the FAST Act which was in effect from 2016 to 2020.
Meanwhile, in Hong Kong, Balfour’s Gammon joint venture is working on the expansion of Chek Lap Kok airport and the Central Kowloon Route project as part of the administration’s HK$1 trillion package of infrastructure improvements.
FINANCIAL HEALTH
The group reported operating earnings of £85 million for the first six months, a 42% increase on last year thanks to an improvement in profitability across the board.
Even after buying back shares, average net cash continued to increase in the half to £811 million, up 21% on last year.
In addition, Balfour’s own infrastructure portfolio increased in value from £1.1 billion last December to £1.3 billion this June, helped by higher inflation which lifted the indexation value of some projects and the upward revaluation of the Purdue asset which was sold for a substantial capital gain.
The firm has excellent forward visibility thanks to its £17.7 billion order book, up 10% on this time last year, meaning it can afford to be selective on which contracts it bids for to maintain a high-quality flow of work.
Given the positive momentum in the business, the board raised the interim dividend by 17% to 3.5p per share and said it expected full year underlying operating profits to be above its previous forecast, although it didn’t quantify its new guidance.
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