The government’s approval for the HS2 high-speed rail enterprise connecting London with Birmingham, Manchester, and Leeds is Europe’s largest infrastructure project, costing a staggering £104 billion. Due to be completed by 2036, HS2 should synergise Britain’s economic potential, revitalise our dated transport system and reduce carbon emissions to fulfil reduction targets.
It is hoped this large project will nourish an untapped source of wealth across the ‘northern powerhouse’ – and perhaps your portfolio, too!
Balfour Beatty (LSE: BBY) is trading 51% higher at the time of writing today than it did six months ago. The UK’s largest construction group – with a market cap of 1.95bn and a 10% increase in pre-tax profits this year -merely outpaced itsstruggling rivals.
What makes BBY undervalued? Impressively, the annual rate of growth for Balfour Beatty’s earnings is 13%. It is predicted BBY’s profit margin will have expanded from 2.0% to 2.4% by 2022.
With a current price to equity ratio of 10.32, compared with the industry standard of 14.24, this signifies its current share price is undervalued. Therefore, by outperforming earnings forecasts, I believe a rise in share price is likely.
Positive news flow
The announcement of a two-part design and build contract, valued at £2.5 billion, awarded from the HS2 project helped increase BBY’s order book by 5% from £12.6bn in 2018 to £13.2bn in 2019. This positive news flow is one of many announcements shareholders will prosper from, in my opinion.
If you consider the future potential of its earnings outlook, I think Balfour Beatty is a great value investment.
Ready for boarding
Over the past month, the Kier Group (LSE: KIE) share price has increased by 87% at the time of writing, from 80p to 149.5p. This came after Prime Minister Boris Johnson confirmed the continuation of the HS2 project, for which Kier is a contractor.
This gem-like investment is an attractive alternative, but is the stock ready for boarding?
The company’s share prices in the past two years has fallen 85%. Kier was weighted down by average month-end net debt of £422m during the 2018/19 financial year. However, management often overlooks a lot of off-balance-sheet debt when publishing net debt.
Due to the company not publishing these figures, it is difficult to judge if the debt amount will be a problem or not. Since most borrowing is in joint ventures, it may not, therefore, be relevant to the business, and Kier may be financially stable.
Despite Kier’s valuation, HS2 is helping to drive Kier’s share price. The impressive performance of the business winning over new contract agreements has helped to strengthen the company’s performance.
Perhaps some brave Fools may be ready to board the stock.
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John Wallace owns none of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.