Stock of the day 24/03/2015 – Balfour Beatty PLC

Balfour Beatty, the largest construction contractor in the UK and a company with numerous multinational infrastructure operations, has spent the last year navigating increasingly choppy waters, something that is unlikely to change after its full year 2014 earnings release on Wednesday.

Four profit warnings in 12 months, on top of two previous profit warnings AND two failed takeovers, including the end of the year implosion of a deal with Carillion, give just a snapshot of the troubles Balfour Beatty has had of late.

The company’s 2014 trading year was defined by multiple plunges inspired by the too-familiar sight of profit warnings, with a 20% fall at the start of May and a 15% fall at the end of September eating into whatever meek recovery Balfour had been making in 2013. This left the stock at £2.11 by the end of the year after starting at £2.88. So far in 2015 Balfour has managed to avoid another precipitous drop, but that may change after Wednesday. It opened the year at £2.12 and has steadily been climbing; its low came at the end of the first week of January at £1.96, but big gains at the end of January saw Balfour peak at a price of £2.52. However troubling pre-release murmurs have eaten into this high, and the stock is now trading at £2.26.



Following the appointment of Leo Quinn as Group Chief Executive in January, investors will be looking for specific plans of a turnaround in the company’s fortunes, something that Quinn has been relatively quiet on since his appointment. Yet Quinn has worked his magic at De La Rue and Qinetiq in the past, and investors responded positively to his hiring when it was announced.

The company has continued to try and fix its finances, recently selling Balfour Beatty Rail S.p.A, its Italian electrification subsidiary, to the Swiss company Alpiq. This is just the latest in these kinds of moves that includes the £820 million sell-off of Parson Brinckerhoff, a sticking point in that failed Carillion takeover. There are also some less-caveat-filled positives. In the past few months the company has secured contracts with Thames Water, gained a wind farm transmission project off the coast of Wales and most notably won a £268 million residential development contract in Hong Kong.

Yet Wednesday will likely be dominated by the company’s headline figures. The news that Balfour is expected to suspend its dividend drove its declines last Friday and this Monday, and could spark more losses if confirmed. On top of this come a 0.5% drop in revenue to £8.69 billion, and a staggering 80% fall in net income to £23.76 million. However, analysts aren’t as gloomy about the stock as these figures would suggest, giving Balfour Beatty a consensus rating of ‘hold’ with an average price target of £2.27.