Balfour Beatty Rises as U.K. Construction Rebounds: London Mover
Balfour Beatty Plc (BBY), Britain’s largest construction company, had the biggest two-day gain in five years after Deutsche Bank said a recovery in the U.K. and a solid U.S. market will boost earnings in the next two years.
Balfour’s order intake will “remain at a good level, supporting margins and working capital inflow,” Manu Rimpela, a London-based analyst at the bank, said in an Aug. 16 note. He raised his recommendation to buy from hold, and increased his price prediction 27 percent to 280 pence.
Shares of the London-based company, which builds structures from Hong Kong viaducts to U.S. college buildings, rose as much as 3.4 percent and were up 2.5 percent at 251.8 pence at 11:24 a.m. That took the two-day gain to 11 percent, the most since December 2008.
The U.K. Purchasing Managers Index for construction jumped to 57 in July from 51 in June, the highest since June 2010 and ahead of the median estimate of 13 economists surveyed by Bloomberg. A reading above 50 indicates expansion. Construction data show “clear signs of pickup” in the U.K., Rimpela said.
Balfour’s advance came less than a week after it reported a 67 percent drop in first-half operating profit led by weaker performance in the U.K. and Australia. That prompted the stock to drop 6.8 percent on Aug. 14. Chief Executive Officer Andrew McNaughton said the U.S. will be the biggest part of the business in 2014.
“By no means were first-half results good, but we believe they marked the earnings trough,” Rimpela said. Balfour has a “sustainable” dividend yield of 6 percent, supported by disposals including the sale of facility management business WorkPlace, that offers protection to investors, he said.
Of the 16 analysts who share recommendations on Balfour with Bloomberg, five have buy recommendations, while six advocate holding the shares and five advise selling.
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