One of the most obvious winners from a budget focused on the regions and ‘levelling up’ is the infrastructure sector. Shares in listed companies involved in building roads and railways shot up following the Chancellor’s announcement that investment will be the highest since 1955.
Infrastructure and Balfour Beatty
Infrastructure company Balfour Beatty (LSE: BBY) operates mainly in the UK, US and Hong Kong. It’s currently working on a 53-storey residential tower near Canary Wharf, the Hinkley Point C nuclear power station and Whitechapel station as part of the Crossrail project.
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It gained a 19% share price boost from investor hopes on the back of the increase in infrastructure spending. It means Balfour Beatty is clear a winner from the budget that gave a much-needed lift to shares that have generally been flat over the last six months.
But despite the positive sentiment, as always, the main thing investors need to watch with infrastructure companies is margins. Carillion is gone. Interserve wiped out most shareholders. Even Balfour Beatty itself was struggling only a few years ago. In 2015 it slumped to a £304m loss and scrapped its dividend. Since then the business has improved. If margins can be further improved from 2.4%, then it really could be a budget winner worthy of the big share price jump.
Broadband and BT
Carrying on the infrastructure theme, digital was also an area of focus. There was an announcement in the budget of £5bn to help more households benefit from faster broadband.
High-yielding BT (LSE: BT.A) has already said it will launch its new Gigabit home broadband service to consumers across the UK later this month. That’s a service offering extra-fast broadband. I think the overlap of interests between what the government wants and what BT can deliver means relations between the two should improve. This ought to be good news for Openreach.
It ought to be good news for shareholders too. Its largest operation, Consumer, sells mobile and broadband directly to nearly 30 million people. You might be one of them through the BT, EE or PlusNet brands. It’s an undeniably impressive customer base. The company also operates internationally, is cutting costs and is bundling its services, which will raise revenues per customer.
The telecoms giant has a potentially very profitable combination of a low P/E of four and a high dividend yield of over 12%. But at that level, a cut to the dividend seems possible, or even likely. This could hurt the shares in the short term, so that’s one trip hazard to watch out for. Other than that, I think there’s potential in the shares, especially after yesterday’s budget.
The budget and an interest rate cut by the Bank of England has done very little to stop stock markets falling, but in the long-term, I think both Balfour Beatty and BT have good prospects and can reward investors.