News Column

Balfour shares nosedive after profit warning

July 4, 2014


INFRASTRUCTURE group Balfour Beatty's share price plunged 15 per cent in early trading yesterday, after the firm delivered its fourth profit warning in two years.

The FTSE 250-quoted company said its expected a 35m profit shortfall, due to problematic contracts in the engineering services part of its UK construction business. Most of this will come from delayed, reworked or disputed contracts in the London area.

Balfour said the loss would be offset by public-private partnership (PPP) asset disposals in the second half of the year, although this did not satisfy the market, with some analysts saying the one-off sale would just paper over the cracks in the business.

"As previously highlighted, we are on a 12-18 month programme to restore our UK construction business to a firm footing," said the firm. "Whilst the regional and major projects businesses, which comprise 90 per cent of the UK construction business, are on track and continue to perform in line with our expectations, there has been further deterioration in the engineering services business."

The company is currently searching for a new chief executive, after Andrew McNaughton stepped down in May, coinciding with another profit warning. Balfour said at the time that it might sell engineering consultancy Parsons Brinckerhoff, which it bought in 2009 for $626m (369m).

Full-year profit guidance remains unchanged at 145-160m, and shares closed down 4.51 per cent at 222.50p ANALYST VIEWS Interviews by Suzie Neuwirth WHY DID THE MARKET REACT SO BADLY TO THE BALFOUR UPDATE? HOWARD SEYMOUR NUMIS It's disappointing that the firm has issued yet another profit warning when the last one wasn't even that long ago. Most parts of the business are doing well, but the engineering services unit is having a disproportionate effect on the company. If construction is bad it can be a big issue for them.

STEVE CLAYTON MIRABAUD SECURITIES The divestments they're making to offset the profit shortfall are unrepeatable - you can only sell off assets once. Next year, they will still have an earnings hole in the engineering services business and will need to find something else to sell. Every time they fix one area, something else happens.

JOE BRENT LIBERUM It is credible that changes in management, process and geographical foot print and the fact that only two problem contracts run into next year will help management to deliver a break-even result in engineering services next year. But we would be foolish to rule out further significant losses.

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Source: City A.M. (UK)

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