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FTSE: Balfour Beatty shares surge as UK construction arm returns to profit

·Business Reporter, Yahoo Finance UK
·3-min read
Training exercise in the HS2 Ltd and Balfour Beatty Vinci construction compound
Balfour Beatty said that more than 90% of its UK construction order book came from public-sector and regulated industry clients. Photo: Darren Staples/Getty

Balfour Beatty found favour with investors on Wednesday after it revealed its UK construction arm had returned to profit.

Shares surged more than 9%, to the top of the FTSE 250 (^FTMC), after the division bounced back to a £18m ($21.8m) profit in the first half of the year.

This compared to last year’s £23m loss due to write-downs on private-sector property projects.

The group, which specialises in construction services, support services and infrastructure investment, said that more than 90% of its UK construction order book came from public-sector and regulated industry clients.

The strong performance helped the group to post an overall pre-tax profit of £82m from £4.2bn revenues.

The firm said UK construction remained on track to deliver industry standard margins of between 2% and 3% for the full year, while US construction is expected to continue to deliver in the 1% to 2% margin target range.

Half-year average net cash rose to £811m, compared with the £671m reported in its accounts for full-year 2021.

Leo Quinn, chief executive, said that support services also showed improvements in performance putting the firm on track to hit the top end of its targeted 6-8% margin for the full year.

Looking ahead, he added that Balfour’s order book was 10% up on last year at £17.7bn, providing a good platform for further profit and dividend growth.

Read more: FTSE 100: Persimmon boosted by rising house prices as inflation eats into earnings

“With the group well-positioned to capitalise on the growing infrastructure market, underpinned by its unique capability and balance sheet strength, the upgrade to the full year performance gives the board further confidence in future capital returns,” he said.

Danni Hewson, financial analyst at AJ Bell, said: “Turnaround specialist Leo Quinn continues to make progress at Balfour Beatty, despite rising costs.

“A corporate ‘Mr Fix-it’, Quinn has positioned the construction services business to take advantage of a resilient infrastructure sector and turned what was a bit of a basket case into an increasingly well-oiled machine.

“Since Quinn took the helm at the start of 2015 Balfour Beatty’s shares have advanced 45%. A respectable showing given the impact of disruptive events like Brexit and the COVID pandemic.”

Read more: Inflation: Bank of England likely to raise interest rates by 0.5% again

Meanwhile, Andy Murphy, director at Edison Group, said: “The group has benefited recently from government efforts to drive post-pandemic recovery. Even as global energy and material prices have risen, the increase in state-backed infrastructure has provided a good foundation for the group’s short and medium-term growth.

“Investors will likely be pleased to see management’s emphasis on net-zero infrastructure, given its position as an increasingly vital global industry that is likely to see significant investment over the coming years.”

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