ii view: Balfour Beatty builds on UK energy transition needs

Full-year results to 31 December

• Revenue up 4.4% to £10 billion
• Adjusted profit from operations up 7% to £252 million
• Order book up 11.5% to £18.4 billion
• Final dividend of 8.7 pence per share
• Total 2024 dividend up 9% to 12.5p per share
• Average net cash held of £766 million, up from £700 million in 2023

Guidance:

• Expects further 2025 and 2026 growth in operations related profit
• New £125 million share buyback announced for 2025 year ahead

Chief executive Leo Quinn said:

"The Group made further strong progress in 2024. We once again delivered managed profitable growth from our earnings-based businesses and healthy cash generation, while also increasing our high-quality order book.

"The Board continues to have confidence in Balfour Beatty's ongoing ability to deliver sustainable cash generation for significant shareholder returns, as evidenced by our announcement of increased dividends and share buybacks for 2025.”

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ii round-up:

Construction firm Balfour Beatty (LSE:BBY) today detailed profits that beat City expectations, aided by exposure to UK energy transition projects and increased US buildings demand.

An 11.5% increase in the order book to £18.4 billion helped drive annual 2024 operational profits up 7% to £252 million. Average cash held of £766 million was up from £700 million in 2023, supporting a 9% hike in the total dividend to 12.5p per share, as well as a new £125 million share buyback in 2025. 

Shares in the FTSE 250 company rose 3% in UK trading having come into these latest results up by more than a quarter over the last year. Shares in fellow construction group Kier Group (LSE:KIE) are down 13% over that time. The FTSE 250 index is up 1%.

Balfour Beatty projects include the UK’s Hinkley Point nuclear plant, works for energy companies National Grid (LSE:NG.) and Scottish and Southern Electricity Networks in connecting new windfarms, as well construction for new US data centre buildings. 

Construction related profits climbed 2% to £159 million. Support services related profit for items such as power plant assistance and road and rail maintenance, rose 16% to £93 million. The value of Balfour’s infrastructure investments improved 3% to £1.3 billion. 

Balfour recently announced the departure of its chief executive of the last 10 years, Leo Quinn. Philip Hoare, chief operating officer at AtkinsRéalis will succeed him in September. 

Broker UBS reiterated its ‘buy’ rating on the shares post the results. Balfour’s Annual General Meeting (AGM) is scheduled for 8 May, with interim results expected on 13 August. 

ii view:

Started in 1909, Balfour projects have included the Thames Tideway tunnel, the Northern Line extension to Battersea, and the M25/A3 Wisley interchange improvement scheme.  Construction accounted for most revenues during 2024 at 87%, with Support Services the balance. Geographically, the UK generated most sales at 44%, followed by the US at 40% and the rest of the world the balance of 16%. 

For investors, the pending departure of the CEO later this year offers some uncertainty, given Mr Quinn's transformation of Balfour during his tenure. Elevated US government borrowing could yet see infrastructure spending reduced. Costs generally for businesses remain elevated, while construction projects taken on at fixed prices always offer a degree of cost overrun risk.  

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More favourably, an order book of £18.4 billion as of 31 December supports management’s prediction for operational profit growth through 2025 and 2026. Diversity of both operations and geographical regions exist. Previous management initiatives have looked to lower risks including reducing fixed price contracts where possible, while a focus on shareholder returns sees a new £125 million share buyback sat alongside a forecast dividend yield of close to 3%. 

On balance, and while the success or failure of Balfour’s own infrastructure investments can impact overall profits, a consensus analyst estimate of fair value sat close to 500p per share is likely to keep shareholders interested. 

Positives: 

• A focus on lower risk contracts
• Increasing shareholder returns

Negatives:

• Elevated costs
• Uncertain economic outlook

The average rating of stock market analysts:

Buy