As the world continues to emerge from the pandemic, construction and infrastructure projects have increased. FTSE 250 incumbent Balfour Beatty (LSE:BBY) could be primed to benefit.
Infrastructure and construction
Balfour Beatty is an infrastructure and construction business that finances, develops, and maintains infrastructure. Its core territories include the UK, US, and Hong Kong, supported by over 254,000 employees. It operates via three main divisions which are infrastructure, construction, and support services.
So what’s the current state of play with the Balfour share price? Well, as I write, the shares are trading for 250p. At this time last year, the shares were trading for 309p, which is a 19% decrease over a 12-month period. The shares have dipped, like many others, due to the stock market correction and macroeconomic issues.
A FTSE 250 stock with risks
Balfour performance, and especially shares and investment viability, could continue to come under pressure from macroeconomic headwinds. Soaring inflation and rising cost of raw materials could impact profit margins. In turn, this could affect the share price and any returns I hope to make as a potential investor.
Despite being a worldwide business with a vast profile and reach, Balfour is in a saturated, competitive marketplace. Losing out on lucrative projects to competitors could cause a dip in performance and investment viability.
The bull case and my verdict
Let’s take a look at Balfour’s performance track record. I do understand that past performance is not a guarantee of the future, however. Looking back, I can see that revenue increased year on year between 2018 and 2020. Revenue in 2021 was slightly less than 2021 due to the effects of the pandemic.
Coming up to date, Balfour released a trading update in May for the first five months of its fiscal year. Net cash had increased beyond expectations to nearly £800m, which will give it an edge when looking to boost growth post-pandemic. It also expects to record profit and growth for 2022. There were also operational mentions of a few lucrative project wins as well as negative effects from Covid-19 restrictions in its Hong Kong territory.
Balfour shares look like decent value for money to me on a price-to-earnings ratio of 11 currently. The shares could also boost my passive income stream as the shares offer a dividend yield of just over 3.5%. Dividends can be cancelled at any time, however.
I also believe Balfour could benefit from current favourable market conditions. For example, the UK government has pledged to spend billions on infrastructure projects in the UK in the years ahead. A business like Balfour, with its experience and profile, could benefit from a chunk of this and boost shares and returns.
I think Balfour is an underrated FTSE 250 stock. Construction businesses have been viewed as low margin businesses but with the current economic outlook, and future projections of infrastructure projects, Balfour could be set to benefit.
With that in mind, I’d add Balfour shares to my holdings. They look good value for money, offer a dividend, and the business seems to be in a decent position based on its recent updates and current fundamentals with lots of demand ahead.
