Balfour ready to hike asset values to calm shareholders after deal failure

Stakes in hospitals and schools to be revalued from £766m to more than £1.2bn

The building giant Balfour Beatty is poised to begin efforts to sweeten investors following the collapse of its £3bn merger with Carillion as it massively raises the value of its stakes in dozens of schools and hospitals.

Sources said the struggling builder could announce a much higher valuation of its public-private partnership assets – judged to be worth £766m in December – as soon as this week, offering the promise of enhanced returns to shareholders.

Analysts say the portfolio could be worth as much as £1.2bn after the sale of stakes in two projects, a schools project in Knowsley, Merseyside, and a hospital in Durham, for a total of £97m, £44m ahead of December’s estimate.

The revaluation will help Balfour to buy time to prove it can thrive as an independent company before it offers up to £200m to shareholders through the sale of its US arm, Parsons Brinckerhoff. Carillion’s insistence on keeping Brinckerhoff scuppered the deal.

Andrew McNaughton quit as Balfour’s chief executive in May after two profit warnings and the company and its bid defence have since been led by Steve Marshall, who took on the role of executive chairman. The search for a new chief executive has been hampered by uncertainty about Balfour’s future.

Andrew Hussey, an analyst at RBC Peel Hunt, said Mr Marshall had “up to 12 months” to show evidence of improvement to shareholders. He said: “The ball is in Balfour’s court. They have several big things they need to show investors: the revaluation of their PFI portfolio, selling Brinckerhoff, and the appointment of a new chief executive.

“The advantage is that the construction market in the UK is in a growth phase. A new chief executive will probably set out an initial strategy in March and that ultimately is going to decide what happens. There will be some snippets along the way to keep shareholders happy.”

Balfour’s standalone strategy is to focus on construction markets in the United States  and UK. But Stephen Rawlinson, an analyst at Whitman Howard, warned: “One aspect that is strange about what is going on is that Balfour Beatty appears to have had no other suitor than Carillion. In these situations there are usually rumours of other interest but it was absent, or at least it is absent so far.

“There is a hard road ahead for Balfour and investors should be very wary. Lack of alternative suitors is no proof that there are problems, but it does beg a few questions.”

Balfour’s shares closed on Friday at 242p, having hit 275.5p last week before Carillion ended its attempts to reach a friendly merger deal.