Hobson: Balfour Beatty Turns the Corner

THE WEEK: Balfour Beatty has steered away from being the next Carillion, but will rival Kier manage the same feat, asks Rodney Hobson

Rodney Hobson 16 March, 2018 | 2:57PM

Balfour Beatty Bounces Back

There’s only one thing more pleasing than seeing a company that looked down and out bouncing back against all expectations, and that’s when you happen to own shares in it. 

I’m always sceptical of turnaround strategies until they prove they are actually working. But one has to admit that a trebling of profits at construction group Balfour Beatty (BBY) on flat revenue is highly encouraging, even if figures were flattered by the judicious sale of a stake in a motorway consortium. The dividend total is up from 2.7p to 3.6p, enough to keep shareholders happy without being rash.

Chief Executive Leo Quinn has worked wonders since his appointment in 2015, ending the disaster of making uneconomic bids for contracts and steering the group away from the fate suffered by Carillion, the rival that once tried to take Balfour over.

Balfour shares have moved erratically sideways between 250p and 310p for the past 19 months. They are currently around the midway point but I reckon they will test the ceiling again rather than the floor.

Life has not been so kind for shareholders in rival Kier (KIE), where results were greeted with an initial rise of 12p, followed next morning by a fall of 62p. The shares have lost more than a third of their value over the past 12 months as investors speculate that Kier rather than Balfour could turn out to be the next Carillion.

Underlying figures at the half year were solid if unexciting and the outlook for the second half is somewhat better. I think that Kier, like Balfour, will eventually turn the corner given that a major competitor that helped to drive down prices on projects has been removed. However, the shares have a downward momentum that is frightening, so I wouldn’t suggest buying Kier shares until there is a clear sign that the tide has turned.

Don't Sell in May

I know Christmas comes round earlier each year but I’ve never seen anyone parrot the “Sell in May” mantra quite so early. Yet this week I saw a tweet arguing that there was “strong statistical support for sell in May”. The evidence was that shares on average rise “only” 0.3% between May and October.

On that basis if you sell in May you will be 0.3% WORSE off than if you stayed in – and that’s without counting in the dividends you gave up. If that’s the best a protagonist can manage I’ll stick to my annual warning that you follow this erroneous notion at your peril. It does work some years but over time it leaves you out of pocket.

And that’s a cue to warn readers that the ISA year is running out. Don’t scramble to invest at the last moment. If you have any ISA money uninvested, transfer it into your ISA stocks and shares account where it will count for this financial year even if you don’t actually buy anything.

Springing No Surprises

A brief postscript on the almost non-event that was the Spring Statement. The highlight of Philip Hammond’s performance was when he almost broke into a grin when he said the Brexit talks were making good progress.

I suspect there is a growing body of opinion that, like me, thinks the economy is far better off under a Chancellor who follows the motto of “least done, soonest mended”. He’s a massive improvement on George Osborne, who mistook Budget presentations for party political broadcasts.

The projected scaling down of this year’s deficit and scaling up of economic growth were both disappointingly underwhelming but at least both were in the right direction. One day we will – except Mr Hammond – look back on all this and laugh.

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.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Balfour Beatty PLC261.80 GBX0.31
Kier Group PLC78.40 GBX0.51

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.

Audience Confirmation

By clicking 'accept' I acknowledge that this website uses cookies and other technologies to tailor my experience and understand how I and other visitors use our site. See 'Cookie Consent' for more detail.

  • Other Morningstar Websites