Hobson: It is Not too Late to Buy into the Balfour Recovery

THE WEEK: Morningstar columnist Rodney Hobson on Balfour Beatty, Lookers and recent market turbulence

Rodney Hobson 18 August, 2017 | 9:57AM
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Balfour Beatty worker in London

We all make mistakes. The important thing is to learn from them. Construction group Balfour Beatty (BBY) has learnt from the mistakes that emerged with a series of profit warnings a couple of years back. Indeed, the problems caused by chasing unprofitable contracts now seems to have happened much longer ago.

Balfour has swung decisively back into profit in the first half of 2017 and the results are better even if one ignores the write-offs against lossmaking contracts in the previous first half. The interim dividend is raised from 0.9p to 1.2p.

Stricter discipline in bidding for contracts means that work is being won at higher margins and with less risk in the US and UK. Despite Balfour exiting the Middle East, where it ran into trouble, the order book is down only 8% and revenue was actually higher.

The shares had slipped from just under 300p in April to around 260p but the positive results produced an 8% leap before the morning was out. They are back above the level at which I bought long before the troubles emerged and I have had dividends in the meantime so I am more than happy to hold. It is not, however, too late to buy in on the recovery story.

Lookers Punished by Market

I thought the market was a bit unfair to Lookers (LOOK), driving the shares down 6.5% on interim results that weren’t at all bad.

The motor retailer will certainly suffer if the UK economy turns down and there are admittedly signs that motor manufacturing in this country is slowing after several years of rising production. However, this is not yet reflected in figures that showed revenue up 5% in the first half of 2017, with increases in new cars, second hand and aftersales.

Although profits were down a touch overall, profits from continuing businesses improved and debt was reduced sharply. The well-covered interim dividend is increased by 10% and the pay-out looks secure even if the rest of this year fails to live up to management expectations.

The order book for new cars for September, a key month with a new registration number, is healthy, as are aftersales for all those vehicles sold in the recent boom years. The shares hit 139p last August but fell 6.5% on the results to 107.5p, a low point for the year.

Rival Marshall Motors (MMH) saw its shares rise 5% the previous day when it, too, increased its interim dividend after reporting higher sales and profits. Marshall will be subject to the same pressures as Lookers. Investors should view them in the same light.

When Politics Spooks Markets

I was asked by a Twitter follower – Morningstar readers can follow me @rodneyhobson – at the end of last week whether I thought that the dip in share prices was a temporary blip.

Markets across the world had been spooked by the standoff between US and North Korean Presidents Trump and Kim. I took the view that if there was a nuclear war then shares and everything else would probably be pretty worthless anyway.

This was a classic opportunity to buy on the dips, this time with the odds stacked heavily in favour of the brave. It is true that the long-running bull market will come to an end one day and there will be a correction, but with global trade generally picking up, China revving up again, Japan doing better than it has done for many years, Europe likewise, the UK and US still in growth, I can’t believe the day of doom has dawned yet. I remain fully invested in shares.

Rodney Hobson is a long-term investor commenting on his own portfolio; his comments are for informational purposes only and should not be construed as investment advice, nor are they the opinions of Morningstar.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Balfour Beatty PLC252.60 GBX0.80
Lookers PLC68.50 GBX0.15
Marshall Motor Holdings PLC395.00 GBX0.25

About Author

Rodney Hobson

Rodney Hobson  is a columnist for Morningstar.co.uk and author of several investing books, including The Dividend Investor and How to Build a Share Portfolio.