Balfour Beatty’s push into higher margin contracts for overseeing construction projects and maintaining existing infrastructure helped the UK group offset the turbulence created by government spending cuts across Europe and the US.
The country’s largest building company by sales has sought to expand into regions, such as Asia, where demand for construction remains high, and increase its exposure to work where it can bolt margin-boosting ancillary services on to building contracts.
“The markets for construction, particularly in the public sector, are very clearly tough at the moment. But, amid that, we are setting ourselves up to be an important player in the growth markets for infrastructure,” said Ian Tyler, Balfour’s chief executive.
“We are not seeing the gold rush in outsourcing in the UK that many had predicted. There is a slow and steady flow coming through, but the idea that the private sector has all the answers isn’t one the public sector is buying yet,” he added.
Sounding a more upbeat note, however, Mr Tyler said the government was showing interest in projects where the government and private sector combined to deliver new schools, hospitals and transport infrastructure. So-called Public-Private Partnership (PPP) schemes were a flagship Labour policy and construction companies had feared the coalition government would be reluctant to use the method.
“The new government has clearly got its head around the concept, got over the inevitable political machinations around PPP and is back to the hard reality that you need it to deliver the projects the UK needs,” Mr Tyler said.
In spite of a slowdown in Europe and the US, interim revenues at the FTSE 250 group edged up by 1 per cent to £5.2bn. Balfour, which generates almost half of its revenues overseas, saw its order book grow by 6 per cent from £14.6bn to £15.5bn, helped by securing some significant contract wins in the US.
In the six months to July 1 turnover edged up by 1 per cent to £5.22bn, while pre-tax profit fell from £100m to £91m. Diluted earnings per share rose to 10.1p (9.2p) and a dividend of 5.3p (5.05p) was proposed.
Construction is going through an image crisis. Builders are busy adopting ambiguous monikers such as ‘professional services provider’. This garners a better analyst rating. It also tends to disguise what the company does. With construction accounting for almost two-thirds of its first-half sales, Balfour is content to plump for the middle ground of ‘infrastructure group’. Its shares, though, do not reflect its eminence in both classes and look undervalued. Trading at 7 times this year’s prospective earnings, the shares are at a discount to its builder peers at 8.3 times and the high-flying service providers at closer to 10 times.
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