Balfour Beatty On the Right Track

The Week: Morningstar columnist Rodney Hobson hopes Balfour's involvement in the costly HS2 rail project will pay dividends for patient shareholders

Rodney Hobson 5 June, 2020 | 9:05AM
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As a taxpayer I resent paying for projects that I consider to be a waste of money and the inevitably mounting cost of HS2 could surely have been spread around the rail network to greater effect. However, as a Balfour Beatty (BBY) shareholder I will at least be getting some of my misspent money back.

HS2, the high-speed link from London to Birmingham – and perhaps beyond if the money doesn’t run out – has boosted Balfour’s order book to a pretty healthy £17.4 billion. Pre-tax profits jumped 50% in 2019 and this year is set for a further substantial advance. Balfour has decided not to pay a final dividend for last year for purely political reasons.

Balfour shareholders should be patient. The company can well afford the originally proposed 33% increase in the payout proposed before Covid-19 struck but it doesn’t look great to be taking government money in times like these and passing a larger amount to shareholders. Instead, the large cash pile will remain, ready to be handed out when it is more seemly to do so.

The shares were dragged down unfairly in the coronavirus panic but at 260p have recovered most of the loss. It’s not too late to buy in.

Dealt a Bad Hand

Card Factory (CARD) worked well when sales were out of the back of a van in Wakefield but it isn’t a success with 1,000 stores. It does not expect to pay a dividend in the current year to next January and that isn’t all down to the coronavirus. It scrapped a special dividend in January and two months later did likewise with the final dividend for 2019-20, covering periods before lockdown shut its stores. Online sales have soared in the past few weeks but not by nearly enough.

Revenue in the past financial year was 3.6% higher but only because there were 50 more stores. Like-for-like sales slipped 0.5% and underlying pre-tax profits slumped 11.8%, with the key Christmas period losing its sparkle.

The shares, now 44p, have lost three-quarters of their value over the past 12 months. They have bottomed out since mid-March but show little signs of recovery, which is hardly surprising. Among the disaster that is the High Street, this is more disastrous than most. Stay well clear of the shares.

2020 vision

Can the British motor industry bounce back from a slump that pre-dated the coronavirus shutdown? Nissan seems to think so, having chosen to retain its factory in Sunderland rather than the smaller Barcelona production line despite fears that Europe will shut its doors to the UK post Brexit.

Car dealer Lookers (LOOK) reopened its showrooms this week, and while the outlets were not overwhelmed in the first trading days there is surely some pent-up demand to be satisfied even if many customers can’t afford to trade up to newer models.

On the negative side, a further 12 outlets have been identified for possible closure on top of 17 chosen last November and there could be 1,500 redundancies, so Lookers itself is not brimming with confidence. We also await the outcome of an inquiry by business advisers Grant Thornton into financial irregularities. A draft report is under scrutiny and we should know more when delayed results for 2019 are published at the end of this month.

Lookers rightly declines to predict the immediate future. We can see about as far down the road as Dominic Cummings could with blurry vision.

The shares are down from 185p at the end of 2015 to around 25p now. They have actually recovered from a low of 11p and the next potential ceiling is around 42p. This one is strictly for risk-takers who are prepared to sit tight for the long term.

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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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.