Balfour Beatty plc Boss Gets The Bum’s Rush

Balfour Beatty plc (LON: BBY) shares slide on profit warning.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

We had a profit warning today from Balfour Beatty (LSE: BBY), and within minutes we heard that the firm’s boss, Andrew McNaughton, had had a rectangular opening in the wall brought to his attention.

Balfour Beatty Shortfall

The warning told us that 2014 profits would be “significantly lower than expected“, and the share price crashed by 55p (19%) to 231p by mid-afternoon as a result. The announcement revealed that the company now expects “a £30 million shortfall in our UK construction business in 2014“, and that pre-tax profit for 2014 should be in the range of £145-160m — City analysts were expecting around £185m before today.

But Mr McNaughton had only been in the job for a year, so has he been treated as a scapegoat? A look at the sector as a whole suggests a definite maybe.

Although the revised pre-tax profit figure is less than previously expected, it would still represent a massive recovery from the two-year slump the company has been through — in 2012, we saw a pre-tax profit of £147m, followed by a big crash to just £32m last year (although underlying figures were given as £277m and £187m respectively).

Before today, analysts had predicted a 5% recovery in earnings per share for this year, with double-digit rises to follow — and there’s a 5% dividend yield on the cards.

If we look at the competition, we see a similar picture.

OLYMPUS DIGITAL CAMERATough time all round

Kier Group (LSE: KIE) also saw earnings dip in 2013, and has a further 23% drop in EPS forecast for the year to June 2014 before there’s any return to growth on the cards — and Kier shares are valued at a forward P/E of a pretty big 16, with a dividend yield of a relatively modest 4.2% expected.

The last interim update we had from Kier told us that things were going well, with the firm’s acquisition of May Gurney helping boost revenue to £1.4bn. But chief executive Paul Sheffield spoke of “continuing financial pressures in the markets“.

And if we take a look at Morgan Sindall (LSE: MGNS), a smaller firm in the same general market and one I consider especially well managed, we see a fall of a third in EPS for 2013, with only a modest 2% recovery predicted for 2014.

And again, we have a company telling us of “tough market conditions throughout the year” in its 2013 results statement released in February.

So what’s really going on at Balfour Beatty, and should we be expecting more bad news to follow? It’s very hard to say, but in Mr McNaughton’s shoes today I think I might be feeling a bit miffed.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan does not own any shares in Balfour Beatty, Kier Group or Morgan Sindall.

More on Investing Articles

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »