FTSE 250 construction giant bucks UK construction outlook with strong infrastructure investment and US housebuilding demand
Balfour Beatty saw its underlying profits surge(Image: Birmingham Mail)
Balfour Beatty has raised its earnings and cash flow targets, as the construction giant’s “real momentum” defies the sector’s general gloom.
The group, which partners with the government on major infrastructure schemes, has seen its order book surge by 17 per cent to £22.9bn in the six months to June, while revenue climbed eight per cent to £5.6bn.
This upturn in revenue was underpinned by growing demand in US housebuilding and the UK’s power industry, the firm confirmed.
The FTSE 250 company upgraded its earnings targets from low single to high double-digit growth and raised the upper limit of its net cash forecast from £1.5bn to £1.7bn.
The infrastructure behemoth recorded a 42 per cent rise in underlying profit to £153m over the period, although its headline pre-tax profit edged down by two per cent to £129m, as reported by City AM.
Chief executive Phillip Hoare said: “Balfour Beatty enters the second half with real momentum.
“Our strong first-half performance reflects the quality of our business, the discipline of our execution and, above all, the exceptional contribution of our people in delivering for our customers.”
The group’s buoyant trading update stands in stark contrast to the prevailing gloom across the UK’s construction sector, as housebuilders and materials suppliers flag mounting costs and weakening private-sector demand.
On Tuesday, prominent housebuilder Bellway called on the government to reduce stamp duty in order to stimulate construction activity. Last month, the chief executive of property portal Rightmove stated that the nation’s housebuilders are confronting conditions “among the most difficult experienced since the global financial crisis”.
However, Balfour Beatty highlighted expansion in the UK’s energy, defence and transport infrastructure sectors as a principal catalyst behind its revenue increases.
“These markets are supported by strong funding commitments and enduring customer demand, providing attractive growth opportunities over the near to medium term,” the group informed shareholders.
The robustness of demand for these infrastructure projects enables Balfour Beatty to be “disciplined and selective” in choosing which work to pursue, the company stated.
Significant contracts secured by the business during the year to date include a £325m power transmission scheme in Scotland, a £315m road maintenance programme in Warwickshire and $350m (£259m) worth of US data centre commissions.
“We expected a strong performance and Balfour Beatty delivered again,” analysts at Peel Hunt remarked, noting that the company’s revenue visibility “continues to drive a higher quality of growth.”
Alex Pugh, an analyst at Freetrade, observed that the group has successfully sidestepped the challenges confronting private-sector housebuilders by concentrating on demand “in areas where spending is hard to avoid: power networks, transport, defence and US buildings”. “This is a company in the right place at the right time. […] The balance sheet is doing some heavy lifting too. Strong cash generation means Balfour can fund growth and still keep investors sweet with dividends and buybacks.”
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