US Edition Balfour Beatty
273p+4¾
Questor says Buy
BALFOUR BEATTY, the FTSE 250-listed construction company, is showing signs of a long-awaited recovery in the construction market, after announcing contracts in the US yesterday. The shares, which already offer more than 5pc in dividend yield, are starting to look interesting.
Shares in the infrastructure construction sector are bombed out and Balfour Beatty is no exception. In April, the company issued its second profit warning within six months. In August, the group said first half pre-tax profits had fallen by 70pc on weak end markets in the UK and Australia, news which resulted in the shares sinking 10pc.
When shares fall this far they can enter value territory. Balfour is starting to win new contracts, such as the £77m deal to build roads and bridges in Wilmington in the US. The contract is small compared to Balfour’s £9.8bn in sales, and £193m forecast pre-tax profits, but it is a sign that construction decisions are being made again. Since June the company has announced £860m in new work.
There are encouraging signs from consultant engineers as well. They are a useful indicator for work, as they design the projects before handing them on to the likes of Balfour. The biggest consultant engineer in Britain, WS Atkins has seen its shares almost double during the past 12 months on work in the UK.
Next year looks as if it will still be tough for construction. Profit margins are expected to fall to about 2pc.
However, with Balfour Beatty shares offering a dividend yield of 5.2pc, you can afford to sit tight for the recovery. The dividend payments are covered 1.6 times by earnings and have an unbroken record of increasing or being held over the past 10 years.
So, trading on 13.5 times 2013 earnings, falling to 11 times next year, the shares – up 1.8pc yesterday – present a good long-term option. Buy.