Investment Column: Balfour is cheap and US unit gives cheer

Computacenter; Weir


Our view: Buy

Share price: 275.2p (-7.2p)

Investors in construction and infrastructure group Balfour Beatty got their fingers well and truly burned in 2008, but while the stock has yet to get close to the 420p of two years ago, the company is now on the mend.

Balfour yesterday announced new contracts with United Utilities and Anglian Water worth about £600m, with a spokesman for the group saying that the agreements are the sort of long-term, stable deals the company sees. Furthermore, Friday's trading update, according to UBS, should show solid 2009 trading", with all divisions except rail" reporting good numbers.

A further fillip for investors is last year's takeover of US support services outfit Parsons Brinckerhoff, which has increased exposure to the US: Balfour say it wants 40 per cent of turnover from across the pond, and the deal pushes the level above 30 per cent.

The problem for investors is that the group depends on government spending for about 20 per cent of its turnover in its biggest market, the UK. With the three main political parties falling over themselves to suggest post-election cuts, Balfour is likely to see to some contracts being scaled back, even though there will still be opportunities in markets such as water and nuclear.

While we think there may be pressure on the sector in general, we do not think that Balfour Beatty's stock, trading on a 2010 price to earnings ratio of 7.97 times, is particularly aggressively priced. In fact, on that multiple, it sits at a rather cheaper level than most in the sector. The dividend yield is also a very respectable 4.5 per cent.

We do not expect any nasty surprises on Friday, and while we have concerns for the wider sector, we reckon that parking your money in Balfour Beatty would be a sensible move for the long term, particularly given the shares' cheap valuation. So Buy.

Computacenter

Our view: Hold

Share price: 309p (+17.7p)

A year ago, IT outsourcer Computacenter said it planned to "focus the group's activities, reduce our operating costs and optimise our working capital". It seems to have paid off.

Computacenter put out an update yesterday for the year to the end of December, saying pre-tax profits would be "materially ahead" of the consensus expectations for £48.4m.

The company is now split 50:50 between providing contract services, such as day-to-day management of companies' IT, and professional services, which mainly deals with big-ticket projects such as data centres.

The contract services business has been particularly strong, and contracts were over £500m at the end of December, 7 per cent higher than the year before. Clients include BT, Marks & Spencer and Hays. Costs were cut by almost £30m, almost double last year's estimate, and exceptional items will be £1.5m less than predicted following the sale of the Trade Distribution Division in November.

It's not all rosy, as the group admitted. Revenues in the UK fell 11 per cent to £1.25bn, although there was growth in the fourth quarter. Professional services declined 11 per cent because of the lack of new infrastructure projects. But management believes the pipeline has improved and will improve further with the economy.

The group is trading on 12.2 times full-year forecast earnings. There could be more to come. However, while the update was positive, we worry that signs of recovery in professional services will take some time to translate to big contract wins. So at the current valuation level we say hold.

Weir

Our view: Hold

Share price: 794.5p (-3.5p)

Weir saw its shares touch a session low of 768p, down almost 4 per cent, after issuing a trading statement yesterday. The decline was pinned on the fact that the engineering group, which raised its full-year profit expectations on the back of a good fourth-quarter performance, held back from upgrading its outlook for 2010. The company cited a lower opening order book and uncertainty over the speed of the recovery. We'd point out that the intraday losses were as much a function of the company's caution as the market's optimism in the run-up to yesterday's statement. After all, Weir has rallied strongly since slipping to 669p in early December.

This is important. We like the company and are confident of its prospects – Weir has strong balance sheet, and is well placed to exploit an upturn in its end markets. But the shares seem pricey. They trade on a multiple of 15 times forecast earnings for 2010, according to Numis, and while a higher premium may be justified in the long term, given the company's own caution, they appear to offer limited upside in the short term. We think exposure to the shares is a good idea but would not wade in. Hold.

PROMOTED VIDEO
Arts and Entertainment
glastonbury
News
i100
Arts and Entertainment
Shock of the news: Jake Gyllenhaal in ‘Nightcrawler’
filmReview: Gyllenhaal, in one of his finest performances, is funny, engaging and sinister all at once
Life and Style
Taste the difference: Nell Frizzell tucks into a fry-up in Jesse's cafe in east London
food + drinkHow a bike accident left one woman living in a distorted world in which spices smell of old socks and muesli tastes like pork fat
Arts and Entertainment
Kit Harington has been given a huge pay rise to extend his contract as Jon Snow in Game of Thrones
tv
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
Don’t send in the clowns: masks and make-up conceal true facial expressions, thwarting our instinct to read people’s minds through their faces, as seen in ‘It’
filmThis Halloween, we ask what makes Ouija boards, demon dolls, and evil clowns so frightening?
News
peopleFarage challenges 'liberally biased' comedians to 'call him a narcissist'
Arts and Entertainment
Liam and Zayn of One Direction play with a chimpanzee on the set of their new video for 'Steal My Girl'
music
Arts and Entertainment
Young Fathers are the surprise winners of this year's Mercury Music Prize
music
News
i100
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Finance Assistant - Part time - 9 month FTC

£20000 - £23250 Per Annum pro rata: Clearwater People Solutions Ltd: Pro rata ...

Marketing Manager

£40 - 48k + Benefits: Guru Careers: We are seeking a Marketing Manager to join...

Market Risk Manager - Investment Banking - Mandarin Speaker

£45,000 - £65,000: Saxton Leigh: Our client is a well-known APAC Corporate and...

Compensation and Benefits Manager - Brentwood - Circa £60,000

£60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...

Day In a Page

The drugs revolution starts now as MPs agree its high time for change

The drugs revolution starts now as MPs agree its high time for change

Commons debate highlights growing cross-party consensus on softening UK drugs legislation, unchanged for 43 years
The camera is turned on tabloid editors in Richard Peppiatt's 'One Rogue Reporter'

Gotcha! The camera is turned on tabloid editors

Hugh Grant says Richard Peppiatt's 'One Rogue Reporter' documentary will highlight issues raised by Leveson
Fall of the Berlin Wall: It was thanks to Mikhail Gorbachev that this symbol of division fell

Fall of the Berlin Wall

It was thanks to Gorbachev that this symbol of division fell
Halloween 2014: What makes Ouija boards, demon dolls, and evil clowns so frightening?

What makes ouija boards and demon dolls scary?

Ouija boards, demon dolls, evil children and clowns are all classic tropes of horror, and this year’s Halloween releases feature them all. What makes them so frightening, decade after decade?
A safari in modern Britain: Rose Rouse reveals how her four-year tour of Harlesden taught her as much about the UK as it did about NW10

Rose Rouse's safari in modern Britain

Rouse decided to walk and talk with as many different people as possible in her neighbourhood of Harlesden and her experiences have been published in a new book
Welcome to my world of no smell and odd tastes: How a bike accident left one woman living with unwanted food mash-ups

'My world of no smell and odd tastes'

A head injury from a bicycle accident had the surprising effect of robbing Nell Frizzell of two of her senses

Matt Parker is proud of his square roots

The "stand-up mathematician" is using comedy nights to preach maths to big audiences
Frank Warren: Call me an old git, but I just can't see that there's a place for women’s boxing

Frank Warren column

Call me an old git, but I just can't see that there's a place for women’s boxing
Adrian Heath interview: Former Everton striker prepares his Orlando City side for the MLS - and having Kaka in the dressing room

Adrian Heath's American dream...

Former Everton striker prepares his Orlando City side for the MLS - and having Kaka in the dressing room
Simon Hart: Manchester City will rise again but they need to change their attitude

Manchester City will rise again but they need to change their attitude

Manuel Pellegrini’s side are too good to fail and derby allows them to start again, says Simon Hart
Isis in Syria: A general reveals the lack of communication with the US - and his country's awkward relationship with their allies-by-default

A Syrian general speaks

A senior officer of Bashar al-Assad’s regime talks to Robert Fisk about his army’s brutal struggle with Isis, in a dirty war whose challenges include widespread atrocities
‘A bit of a shock...’ Cambridge economist with Glasgow roots becomes Zambia’s acting President

‘A bit of a shock...’ Economist with Glasgow roots becomes Zambia’s acting President

Guy Scott's predecessor, Michael Sata, died in a London hospital this week after a lengthy illness
Fall of the Berlin Wall: History catches up with Erich Honecker - the East German leader who praised the Iron Curtain and claimed it prevented a Third World War

Fall of the Berlin Wall

History catches up with Erich Honecker - the East German leader who praised the Iron Curtain and claimed it prevented a Third World War
How to turn your mobile phone into easy money

Turn your mobile phone into easy money

There are 90 million unused mobiles in the UK, which would be worth £7bn if we cashed them in, says David Crookes
Independent writers remember their Saturday jobs:

Independent writers remember their Saturday jobs

"I have never regarded anything I have done in "the media" as a proper job"