The Investment Column: Olympics are a golden hope for Balfour Beatty
Amlin looks strong, but wait for better times
Thursday 18 August 2005
Don't expect the company to get heavily involved in the building of the Olympic venues. Too many firms have come to grief with cost overruns on grandiose projects such as these. Instead, Ian Tyler, the chief executive, sees Balfour Beatty getting work on road widening and rail projects as the Games galvanise plans for improvements to the capital's transport infrastructure.
The opportunities for work in the UK stretch as far as Balfour Beatty can see. It already has £7.4bn of work in the pipeline (its order book is up 9 per cent in just the past six months) with two big new schools and a £521m hospital building in Birmingham among those coming through this year. There have been mutterings that the Private Finance Initiative - the scheme for involving private companies in the funding of new public sector building projects - might be falling out favour in Government, but while that may alter Balfour Beatty's business model a little, management has shown an ability to tack to whatever is the prevailing wind. The company already has a growing social housebuilding division, and could move to expand further in the US if growth does slow in the UK.
Yesterday's interim figures were mixed, with disappointments on some minor projects in the US, and the shares fell. Much was made, too, of a warning that the outlook for rail infrastructure work is uncertain in the UK and Germany. While this business may stop accelerating, it will not stop growing, and a dividend rise should add to confidence. Long-term buy.
Amlin looks strong, but wait for better times
Amlin, the Lloyd's underwriter, has defied our expectation over the past year, as its shares have continued to rise in spite of a toughening market.
With premiums having softened across most lines of business, this part of the cycle would have once seen insurers chasing volume at any cost, hoping that any increase in underwriting losses would be offset by strong investment returns. But Amlin is no longer willing to take such risks. Instead, the focus has been on writing profitable business - even if it means taking a reduction in overall revenues.
Although there is undoubtedly less of this "good" business around, a rally in the equity markets and an improvement in the insurers' claims records has kept many on track at a time in the cycle when they would once have been languishing.
The dangers of the cycle remain, however, and in spite of Amlin's announcement yesterday that interim profits will come in ahead of expectations, the going will continue to be tough over the coming months.
Although its appetite for acquisition may be the key to growth in a weak market, its only attempt so far - for Chaucer - came to nothing.
Amlin is one of the stronger Lloyd's insurers, with a dividend yield of more than 4 per cent and a very modest share price. However, there will surely be better times to buy.
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