Despite yesterday’s troubling numbers, analysts see reasons to be positive about Balfour Beatty
Balfour Beatty chief executive Leo Quinn may have described the construction group’s 2014 results as ‘horrible’ yesterday, after it slumped to a £304m pre-tax loss for the year, but the City has reacted remarkably positively.
Balfour’s share price closed 6% up on the news yesterday at £2.44, up from Monday’s close of £2.31, and has only dipped a little in trading this morning, trading at around £2.40.
Speaking to Building yesterday, analysts attributed the positive share price reaction to investors backing Quinn’s turnaround strategy for the business.
Analyst Stephen Rawlinson also said he was encouraged by the “miraculous” turnaround in the company’s pension deficit, which stood at £128m at the end of 2014 compared to £434m the previous year, based on strong performance by some of its investments.
Here three other analysts share their views on Balfour Beatty’s prospects -
Howard Seymour - Numis
It’s difficult because you have so many big horrible numbers in the results and you then have got a man who has been there for twelve weeks. Over that time Quinn has managed to review 70% of the business by revenue and speaking to people in the business he’s a whirlwind. Quinn is in a situation where figures are bad but now he’s stood up and said that a lot of the problems are easily fixable and he’s put a 24 month time-frame to fix it. With regards to the pension deficit I think that the FD (finance director) has had a hard time but has fixed the liabilities of the business. You are the mercy of the market so they have employed a hedging strategy and if they hadn’t the deficit would have been £280m worse. It helped them get certainty.
Kevin Cammack - Cenkos
The additional provisioning they have made in the UK is not entirely unexpected. Although it’s there it’s not really a surprise, [but] they need to do more to comply with what KPMG has suggested. Passing the dividend is not a surprise either. Beneath all the headlines trading wise there probably wasn’t that much differing, the US has been a touch disappointing and you would hope for more but at the end of the day, people are looking forward not back. To be fair to Leo it’s difficult to go into a huge amount of detail when you’ve only been in the job twelve weeks, it’s remarkable how quickly they have got on and put processes and plans in place to identify what they need to do.
Anthony Codling - Jefferies
The reaction of the share price would suggest that people are backing him to produce results. This is the second time they have reduced market expectations and the share price has gone up, it is usually the other way around. Investors are giving Quinn the benefit of the doubt and time to implement his plans. We were slightly surprised by the size of the downgrade. We thought there would be something, but to be honest from an investor’s point of view people are now looking at 2016/17. We’re buyers of the stock on the turnaround story, -Quinn has a strong turnaround track record, he is a charismatic guy and is successful as a leader. This is a classic turnaround where the incoming CEO tries to paint things as the worst possible picture so that when things do improve it comes from the lowest possible base.