Balfour Beatty results: Analysts' reaction

Howard Seymour, Numis

H1 losses under the new management team were always going to be large following the July update on £150m of write-downs, but have not increased since that time. Inevitably it is also the case that across Services at divisional level there are many moving parts. However, it is also worth highlighting the early and significant tangible benefits of Build to Last - £260m of cash and £25m of cost savings - increased underlying (admittedly small) gain in Investments and outline of management actions ensuring Balfour Beatty is moving onto the front foot as its major markets start to improve. The stock remains a special situation as a recovery stock, but we believe that these first steps are positive ones and we retain our underlying estimates for this year (pre July write-downs) and next.

Alastair Stewart, Westhouse Securities

As expected, the H1 statement was long and complicated, but the headline pretax loss of £150m highlights the group’s continuing difficulties. The net cash position of £260m at the period end looks impressive, but the key metric in any attempt to value the business is the average position and this was a negative: £16m of net borrowings during the period, compared with £318m net borrowings in H2 2014 – after the sale of Parsons Brinckerhoff for £753m. The big question in our view is how and when the already provisioned contracts impact future cashflow and whether new contract losses will appear. We believe the cash impact could be considerable and we doubt this is the end of the writedowns. We continue to believe the group is impossible to value, principally due to the uncertainty on the cashflow, the risk of further losses and our contention that construction businesses can have effectively negative valuations. The only comparative certainty is the £1,252m directors’ valuation of the PPP portfolio. We continue to believe the risks are on the downside.

Stephen Rawlinson, Whitman Howard

Balfour Beatty has avoided any new shocks in the numbers today which will be greeted well. The company has reiterated its belief in the positive long term future, which we believe is valid and drawn attention away from the recent difficulties. That is all it can do at this stage. Underlying revenue for the six months to end June was unchanged at £4.1bn and the loss was in line with expectations at £120m. Importantly the business seems to be making progress by continuing to win work, the order book is unchanged at £11.3bn and with its Build to Last initiative. Patient longer term investors will see a positive case for BBY, supported by its £1.3bn PPP/PFI portfolio. There is no need to rush into the stock at this stage but there is long term value at 250p.

Olivia Peters, RBC

Looking forward, the self-help story remains intact. Most of historical UK problem contracts expected to be at practical or financial completion by end of 2016. In the case of the US they will end in early 2016. The order book declined to £11.3bn from £11.4bn; we believe that the Group is now focused on margin over top line growth. The Group achieved an annualised net cost saving of £25m in 1H, Build to Last is gaining momentum. We believe that Balfour Beatty is through the worst.

Kevin Cammack, Cenkos

The 2015 Interims are as woeful as fore-warned by the last two successive IMSs, the last of which flagged an additional max £150m shortfall in previous contract provisions (mainly UK but also US) –in the event the figure is £152m, but implying the group was only at break-even before these loss provisions. Of course the share price is all about remedial action and regaining former levels of financial performance under CEO Leo Quinn. To this end progress is good but only within the context of previously set targets - no new measures are set or existing ones extended. In that sense and with the shares up over 5% over the past 3 trading days, there might be some immediate disappointment.