Balfour Beatty plc Boss Gets The Bum’s Rush

Balfour Beatty plc (LON: BBY) shares slide on profit warning.

| More on:

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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

We had a profit warning today from Balfour Beatty (LSE: BBY), and within minutes we heard that the firm’s boss, Andrew McNaughton, had had a rectangular opening in the wall brought to his attention.

Balfour Beatty Shortfall

The warning told us that 2014 profits would be “significantly lower than expected“, and the share price crashed by 55p (19%) to 231p by mid-afternoon as a result. The announcement revealed that the company now expects “a £30 million shortfall in our UK construction business in 2014“, and that pre-tax profit for 2014 should be in the range of £145-160m — City analysts were expecting around £185m before today.

But Mr McNaughton had only been in the job for a year, so has he been treated as a scapegoat? A look at the sector as a whole suggests a definite maybe.

Although the revised pre-tax profit figure is less than previously expected, it would still represent a massive recovery from the two-year slump the company has been through — in 2012, we saw a pre-tax profit of £147m, followed by a big crash to just £32m last year (although underlying figures were given as £277m and £187m respectively).

Before today, analysts had predicted a 5% recovery in earnings per share for this year, with double-digit rises to follow — and there’s a 5% dividend yield on the cards.

If we look at the competition, we see a similar picture.

OLYMPUS DIGITAL CAMERATough time all round

Kier Group (LSE: KIE) also saw earnings dip in 2013, and has a further 23% drop in EPS forecast for the year to June 2014 before there’s any return to growth on the cards — and Kier shares are valued at a forward P/E of a pretty big 16, with a dividend yield of a relatively modest 4.2% expected.

The last interim update we had from Kier told us that things were going well, with the firm’s acquisition of May Gurney helping boost revenue to £1.4bn. But chief executive Paul Sheffield spoke of “continuing financial pressures in the markets“.

And if we take a look at Morgan Sindall (LSE: MGNS), a smaller firm in the same general market and one I consider especially well managed, we see a fall of a third in EPS for 2013, with only a modest 2% recovery predicted for 2014.

And again, we have a company telling us of “tough market conditions throughout the year” in its 2013 results statement released in February.

So what’s really going on at Balfour Beatty, and should we be expecting more bad news to follow? It’s very hard to say, but in Mr McNaughton’s shoes today I think I might be feeling a bit miffed.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan does not own any shares in Balfour Beatty, Kier Group or Morgan Sindall.

More on Investing Articles

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »