A week can be a long time in financial markets. So when I recently found a FTSE company that I thought could outperform the broader market for several years, I understood why some of my friends were sceptical. Yet the addition to my portfolio is one that I feel could do very well. Here’s why.
Already on the move
I’m talking about Balfour Beatty (LSE:BBY). The multinational infrastructure group specializes in construction and support services. Over the past year, the stock is up an impressive 25%.
Part of the reason behind the move over this period has been improved financial results. Even though the company is a mature firm, it’s still managing to post yearly growth. The latest trading update from December showed that profit before tax should be ahead of prior year and “slightly ahead of market expectations”.
Looking forward, the order book is growing, which is good news for 2025 and beyond. Importantly, this is being “driven by momentum in the Group’s chosen growth markets, principally UK energy and US buildings”.
The fact that focus is on the UK and US markets leads me to the exact reason why I think the next few years could be strong for the share price.
Higher fiscal spending
As we start 2025, the UK Labour Government are starting the first full year in power, and a new US President about to take power. Both leaders have made it clear they are planning on boosting infrastructure spending in the coming four years.
Balfour Beatty is well placed to take advantage of this, given the existing ties to government departments and a history of securing contracts in these areas. I feel that the US could enact more (and more lucrative) spending plans. The half-year results showed that US construction revenue was £1.7bn, higher than the £1.5bn from UK construction. This shows that the US is already a larger market than the UK in this area. It’s not like Balfour Beatty is just beginning to tap into this market.
Of course, the contract wins will take time to come through. It’ll also take time for the money to filter down to Balfour profits. But I’m thinking about holding this stock for the next few years. Over this time horizon, I expect the share price to rally from current levels as investors realise the benefits that the contracts bring.
One eye on funding costs
There are risks associated with the company. One is that although it has a disciplined approach, it still uses some debt to finance projects. As a result, the fact that interest rates are remaining higher than many thought will mean that funding costs in both the UK and US could be higher than anticipated.
I’m happy to own the stock and feel that investors can consider doing the same.
