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The hoped-for recovery at Balfour Beatty (LSE: BBY) has got off to a couple of false starts over the past year or so, as the construction business has been in a tough patch and the company has been through a difficult restructuring process.

I’m increasingly wary of investing in recovery prospects these days (due to the growing risk that some aren’t going to make it), until I see firm evidence of the turnaround actually happening. First-half figures from Balfour Beatty on Wednesday could be the first hard evidence of that, and investors pushed the share price up 12% in early trading in response.

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Upbeat

Pre-tax profit is up on the first half of last year, both in reported (+26%) and underlying (+14%) terms. And though reported earnings per share dropped by a third, underlying EPS came in 1% ahead — modest, but not negative. In a sign of confidence, the company upped its interim dividend by 31% to 2.1p per share.

Chief executive Leo Quinn spoke of “increasing profits backed by a strong cash performance, plus carefully managed growth in our order book,” adding that the firm has “over 50% of our business and Investments portfolio assets outside the UK.”

That does make it sound like Balfour Beatty is past the worst and is looking at a stronger future, and its geographical diversity could add a bit of Brexit defensiveness. On that, though, I’m concerned about the damage that could be done to UK infrastructure development spending over the next few years should we, as looks increasingly likely, crash out of the EU with no deal.

But even with that, a P/E of around 11 doesn’t look stretching, and I can’t help seeing Balfour Beatty as a long-term income buy.

Cheap?

Speaking of recovery, shares in FirstGroup (LSE: FGP) went into a bit of a slump in the 18 months to the end of 2018, but so far this year they’ve been climbing back nicely — they’re up 43% since their low of 27 December.

But even though we’re still looking at P/E multiples of only around eight, the news on Wednesday that the firm (in partnership with Trenitalia UK) has secured the West Coast rail franchise did little to excite investors. The shares are down 1% at the time of writing, almost as if a UK rail franchise is some sort of poison chalice.

Why are the markets turned off FirstGroup right now? Debt can be a big turn-off these days, and the company was shouldering net debt of £900m at 31 March. But that represents a net debt-to-EBITDA ratio of 1.3 times, and I don’t really see that as a problem.

Split?

But markets seriously dislike uncertainty, and with activist hedge fund Coast Capital calling for a break-up of the business, there’s plenty of that about. And suggestions that a company needs to be broken up to achieve its potential can tend to shake confidence in the current management.

If FirstGroup ends up being split, it will be down to expectations that doing so will improve returns for shareholders. And if it doesn’t, we’ll still have a company that seems to be doing fine but whose shares are trading at super low valuations. Either way, FirstGroup looks tempting to me.

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Alan Oscroft has no position in any 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.

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