US Edition Balfour Beatty
316.2p -0.3
Questor says BUY
Although still involved in construction, the group's strategy is to move towards being a one-stop provider of infrastructure services. This involves design, construction, building services and long-term management and maintenance of all types of buildings and structures.
Although Western economies are still stuttering through the recovery from the financial crisis, the world has an infrastructure deficit. This is as true in developed economies as it is in emerging countries - especially in America where the US Army Corps of Engineers has given the country's infrastructure a D grade.
Yesterday's trading update was positive. Balfour said that the order book was stable, and growth is expected in the second half, helped by acquisitions. Detailed interim numbers will be released on August 17.
In June, Balfour bought Howard S Wright (HSW) in the US. HSW provides pre-construction, general contracting and construction management services and provides an entry into Northern California and the Pacific Northwest. This is in line with Balfour's strategy and HSW has a strong presence in Portland, Seattle, San Francisco and Phoenix.
This US acquisition followed from its major move into the region with the purchase of Parsons Brinckerhoff a couple of years ago. Parsons is a "professional services group" offering consulting, planning, engineering and construction management services. It is involved in major infrastructure projects in the transport, power, water and environmental sectors. For example, Parsons managed the construction of the Hoover Dam bypass across the Colorado River. It has also been involved in Manchester's Metrolink tram system in the UK.
Data from the US Bureau of Transportation shows that in California 28pc of bridges are deemed "structurally deficient and/or functionally obsolete". Four years ago a bridge collapsed in Minneapolis killing 13 people.
Balfour's business is global. It is the world's leading fixed-rail infrastructure contractor, with operations in more than 20 countries. It provides accommodation for the US military as well as facilities management in the UK in public and private sectors. The company is also a leading utilities management and maintenance provider, working as far afield as Hong Kong.
The balance sheet is strong, with cash at the year end expected to be almost £550m. It also owns private finance initiative assets worth more than £650m, underpinning its market cap of £2.2bn
The shares are trading on a December 2011 earnings multiple of 8.8 times, falling to just 8.5 in 2012. The yield is good, at 4.3pc.
The shares were first tipped on January 25, 2009, with investors advised to take up the rights to fund the acquisition of Parsons in September of that year at a 48pc discount. This gave a theoretical ex-rights price of 299.175p for the original tip.
The shares are up just 6pc compared with a market up 48pc, but Questor continues to believe that the shares are cheap.