The Motley Fool

Is It Time To Buy Balfour Beatty plc?

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.

Balfour BeattyBalfour Beatty (LSE: BBY) shares opened sharply lower this morning, and are down by 11% as I write, at just 208p.

Balfour Beatty’s shares have now fallen by 35% since 5 March, when the firm published its 2013 results. Since then, there have been two profit warnings: today’s update says that profits from Balfour’s engineering division are expected to be around £35m lower than expected.

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story. In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

Now that the bad news has been made public, is now the time to buy, or is there more trouble ahead?

What’s bad

Before I get to the positives, I feel I should point out some of the problems still faced by Balfour Beatty.

The big risk, in my view, is debt. Balfour’s net debt rose by around 25% to £420m last year, by my calculations, and the firm also has a sizeable £434m pension deficit.

Cash flow is poor, and the share’s current valuation isn’t outrageously cheap, either: today’s slide leaves Balfour stock on a 2014 forecast P/E of 12.5, while its prospective dividend yield of 6.4% is only just covered by forecast earnings.

Now for the good news

Balfour Beatty says that it will cover the shortfall in engineering profits by continuing to sell its PPP infrastructure assets.

While this smacks of selling the family silver, the firm’s progress to date suggests it is a good time to be exiting these investments: Balfour’s most recent PPP sales totalled £97m, of which £51m was profit. The firm said that the total sale price was 82% above its own valuation, and most of Balfour’s PPP asset sales last year generated similar profits.

In today’s profit warning, Balfour indicated that a number of other assets offered similar potential for re-rating, and that it intended to capitalise on the current strong market, which is being driven by institutional investors looking for yield.

Elsewhere in the business, things don’t look so bad, either. The firm’s construction and support services businesses are trading broadly in-line with expectations, and are benefiting from healthy activity levels in the US and Dubai, as well as strong performances in the UK transport and utility sectors.

A final bonus could come from Balfour’s professional services division; the firm is hoping to sell its Parsons Brinckerhoff business, and says that “a competitive sale process is now fully under way”.

Balfour Beatty could deliver a strong turnaround, but I’m concerned that it’s overly dependent on flogging its PPP assets, and is not generating enough cash from its operations. 

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story.

In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

> Roland does not own shares in Balfour Beatty.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.