The City will be looking for reassurance from Balfour Beatty that it can maintain a healthy order book and margins despite cuts in public spending on construction, when the international infrastructure group reports its interim results on 17 August.
Figures compiled by construction information specialist Glenigan suggest that Balfour Beatty is holding its share of UK markets, despite growing competition from smaller rivals.
Balfour Beatty ranked first ahead of Laing O’Rourke in the year to July 2011 in a Glenigan league table that measures the success of the Top 50 contractors in winning contracts worth over £500,000 in the UK. Balfour Beatty won 238 contracts during the period, securing work worth £2,685.2 million. (In the previous year, to July 2010, Balfour Beatty was also first, winning 228 contracts worth £2175.8 million). By comparison, Laing O’Rourke won 41 contracts, worth a total of £2,541.1 million in the year to July 2011.
Amongst other rivals in the Glenigan league table: Morgan Sindall ranked third with 265 contracts worth £1,866.8 million in the year to July 2011; Kier ranked fourth winning 206 contracts worth £1,872.2 million and Galliford Try fifth with 85 contracts worth £1 220.4 million.
In May, Balfour Beatty said that it was continuing to adapt well to uncertainty in government capital expenditure in the UK and US and that it was ‘encouraged’ by the progress made so far. Overall contract wins during the first quarter had increased its order book from the £15.2 billion reported at the year-end and in early July the group said trading was in line with expectations.
Balfour Beatty’s split of profits this year is expected to be more weighted towards the second half than in 2010. City analysts’ forecasts for adjusted pre-tax profits for the first half of 2011 are in the region of £132-150 million (compared with £141 million in the first half of 2010).
Moreover, the group’s UK construction order intake in the first quarter was ahead of expectations, helped by work won by its regional UK building business, including novated Rok contracts and the award of a Crossrail contract for its civils business.
According to Glenigan contract data, Balfour Beatty’s tendering success rate was similar to levels seen during the whole of 2010. However, Glenigan figures suggest life has got tougher for the group since 2009 when its success rate - measured by the value of its contracts - was higher. In the month of July 2011 alone, Balfour Beatty won 17 significant contracts worth a total of £114.5 million. This compares with 22 contracts worth £248.3 million in July 2010.
Meanwhile, Balfour Beatty continues to top Glenigan’s league table of contractors in the roads sector. In the year to June 2011, the group won 41 roads-related contracts worth £1,340.5 million. The nearest rival, Ferrovial, won contracts worth £235 million.
At its interim results, analysts will be looking for news on Balfour Beatty’s acquisitions and on the group’s progress in churning its Private Public Partnership portfolio, which is the largest in the UK.
With a worldwide turnover expected to exceed £9.5 billion in 2011, Balfour Beatty is the largest construction group based in the UK. In late June, the group acquired US contractor, Howard S. Wright, for an estimated £58 million. The deal gives it an entry into the construction market in northern California and the Pacific Northwest and is understood to make Balfour Beatty the third largest construction services provider in the US general building market.
Investors hope the group’s strong international spread and its resilient business in PPP/PFI will enable it to keep profits growing through the UK downturn. Analysts are forecasting the group’s adjusted pre-tax profits will grow to £350 million in 2012 and £373 million the following year. So far this year, the group’s share price has drifted down with the sector from 315p in January to 256.5p, valuing the group at £1,763.3 million (as at close 9/8/11).
But in May, the group said it was benefiting from a strong order intake in the US in 2010 and its business in Hong Kong continues to grow although its market in Dubai remains subdued. It believes the medium and long-term prospects for its infrastructure markets remain positive.