Balfour Beatty builds up hopes for recovery

Published on Wednesday 12 August 2009 21:28

BALFOUR Beatty held out further hope for a recovery in the construction sector yesterday as it posted solid first-half profits and signalled a rebound in the infrastructure market.

The news comes just days after UK-based peer Morgan Sindall reported a record six months at its infrastructure and construction units despite suffering a 28 per cent drop in overall first-half profit. Balfour, whose activities span engineering, construction and road and rail transport, generated 108 million in adjusted pre-tax profit in the six months to 27 June, up 14 per cent on a year earlier and at the top end of City hopes.

The group is weathering the slump with a 12.5 billion order book bolstered by several major contracts in the US, which now accounts for some 30 per cent of group revenues.

Despite weaker regional building markets at home, it also made "good progress" on several civil engineering schemes, including the M74 in Scotland and the A3 and A421 projects south of the Border.

Balfour secured a string of contracts in the first half including a 1bn deal to widen and maintain London's M25 orbital motorway over the next three to four years.

Chief executive Ian Tyler said: "We're not seeing any hold up in projects for their own sakes, the issue of debt markets and PFI (private finance initiative] are now pretty much behind us.

"The debt markets are coming back to finance those type of projects."

The firm said it expected to make good progress in the second half, boosted by growth at its US operations and UK infrastructure wins. Balfour first entered the US market in the 1980s but its 2007 acquisition of housebuilder Centex's construction arm gave a major spurt to growth.

The division – a key player in military housing – landed contracts in Texas, North Carolina and California from clients including the US Army Corps of Engineers. The wins offset the impact of a 18 per cent fall in orders in the group's building division since the end of 2008, due to currency impacts and the downturn in commercial building markets.

Numis Securities analyst Howard Seymour said: "Overall, this is a strong operational performance and the group has beaten our forecasts on almost all fronts. The order book is holding up well and cash flow remains strong."

Charlie Menegatos at Accendo Markets added: "The group are now seeing opportunities with clients seeking infrastructure partners in the medium and long term, and it is this area we believe will provide substantial upside in the medium term."

Public sector contracts account for the vast majority of Balfour's orders, cushioning it from the worst of the downturn in the private sector.

However, fears over cutbacks in government spending have raised some concerns about the company's long-term growth.

However, Tyler said he was satisfied with the balance of the business, adding: "In the foreseeable future, we see the government continuing to put new schemes out into the market."

Last week, a monthly report from the Chartered Institute of Purchasing and Supply showed the construction industry had contract.