Balfour Beatty - A Labour of Love

Balfour Beatty: The group’s CEO left in May and they have yet to appoint a successor. They were recently approached by Carillion regarding a proposed nil premium merger. These talks foundered when Carillion then requested that Balfour’s proposed sale of their Parsons Brinckerhoff subsidiary be halted. We have now had Balfour’s interim results to 27^th June 2014. These seem less than sparkling with Group revenue down 3% and underlying pre-tax profits down 53%, due in part to operational issues at their UK mechanical & electrical engineering business. However, the order book was only down 1% in constant currency to £13bn. Total debt (including PPP subsidiaries) was £588m against £553m a year earlier. The interim dividend was held at 5.6p, on course for a maintained annual dividend of 14.1p. But this is likely to be covered less than 1.5x by earnings. They say that the sale of Parsons is ongoing, with up to £200m of proceeds due to be returned to shareholders, significant in the context of a £1.67bn market capitalisation. When this return happens, the board will review the dividend in the light of ongoing dividend cover and group debt. To me this looks like a dividend just waiting to be cut and is not the driver for owning these shares. The reasons for owning Balfour Beatty are if you think that Carillion or someone else will end up acquiring them, or if the Parsons sale is the first step in a group break up that might release value. Whilst the sum of the parts may well be more than the current 240p share price (I have seen 305p mentioned) the underlying businesses need attention and that may put suitors off. Balfour Beatty has been a labour of love for shareholders for many years and that is still the case.

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about.