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.

Sport
Laura Trott with her gold
Commonwealth GamesJust 48 hours earlier cyclist was under the care of a doctor
Life and Style
Upright, everything’s all right (to a point): remaining on one’s feet has its health benefits – though in moderation
HealthIf sitting is bad for your health, what happens when you stay on your feet for a whole month?
Arts and Entertainment
Peter Griffin holds forth in The Simpsons Family Guy crossover episode
arts + ents
News
Orville and Keith Harris. He covered up his condition by getting people to read out scripts to him
People
PROMOTED VIDEO
Sport
France striker Loic Remy
sportThe QPR striker flew to Boston earlier in the week to complete deal
Arts and Entertainment
Gal Gadot as Wonder Woman
arts + entsFilmmaker posted a picture of Israeli actress Gal Gadot on Twitter
Sport
Vincenzo Nibali rides into Paris on the final stage of the 2014 Tour de France
Tour de FranceVincenzo Nibali is first Italian winner since Marco Pantani in 1998
News
Bryan had a bracelet given to him by his late father stolen during the raid
people
Arts and Entertainment
Chris Pratt stars in Guardians of the Galaxy
arts + ents
Arts and Entertainment
Pedro Pascal gives a weird look at the camera in the blooper reel
arts + entsPrince Oberyn nearly sets himself on fire with a flaming torch
News
Danny Nickerson, 6, has received 15,000 cards and presents from well-wishers around the world
newsDanny loves to see his name on paper, so his mother put out a request for cards - it went viral
Arts and Entertainment
Zoe Saldana stars in this summer's big hope Guardians of the Galaxy
filmHollywood's summer blockbusters are no longer money-spinners
Sport
Red Bull Racing's Australian driver Daniel Ricciardo (C) celebrates with Scuderia Ferrari's Spanish driver Fernando Alonso (L) and Mercedes' British driver Lewis Hamilton
sport
Arts and Entertainment
comedy
Arts and Entertainment
Public vote: Art Everywhere poster in a bus shelter featuring John Hoyland
art
Arts and Entertainment
Judd Apatow’s make-it-up-as-you-go-along approach is ideal for comedies about stoners and slackers slouching towards adulthood
filmComedy was dominated by the romcom at its most insufferable
Sport
Tour de France competitor Bartosz Huzarski’s legs have highlighted the gruelling nature of the race, after he posted a picture on Facebook showing extremely prominent veins stretching from his feet and all the way up his legs
Commonwealth Games
Life and Style
Elle Kaye demonstrates the art of taxidermy
food + drinkFood revolution taken a step further in new ‘edible taxidermy’ class
News
A rub on the tummy sprang Casey back to life
video
Sport
Halsall broke her personal best in the 50m butterfly
Commonwealth GamesEnglish swimmer is reborn after disastrous time at London 2012
Arts and Entertainment
O'Shaughnessy pictured at the Unicorn Theatre in London
tvFiona O'Shaughnessy explains where she ends and her strange and wonderful character begins
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Life and Style
Workers in Seattle are paid 100 times as much as workers in Bangladesh
fashionSeattle company lets customers create their own clothes, then click 'buy' and wait for delivery
Arts and Entertainment
Red Bastard: Where self-realisation is delivered through monstrous clowning and audience interaction
comedy
Arts and Entertainment
booksForget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks
Voices
The Express offices in the 1930s when writers (such as Orwell) were paid around £2 weekly
voicesWebsites offering your ebooks for nothing is only the latest disrespect the modern writer is subjected to, says DJ Taylor
Life and Style
A cut above: Katy Guest at The Ginger Pig
food + drinkThe Ginger Pig's hands-on approach to primary cuts
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

Application Support Analyst / Junior SQL Server DBA

£40000 - £45000 per annum: Ashdown Group: An established professional services...

Senior Risk Manager - Banking - London - £650

£600 - £650 per day: Orgtel: Conduct Risk Liaison Manager - Banking - London -...

The benefits of being in Recruitment at SThree...

£18000 - £23000 per annum + Comission: SThree: SThree, International Recruitme...

Test Analyst - UAT - Credit Risk

£280 - £300 per day + competitive: Orgtel: Test Analyst, Edinburgh, Credit Ris...

Day In a Page

A new Russian revolution: Cracks start to appear in Putin’s Kremlin power bloc

A new Russian revolution

Cracks start to appear in Putin’s Kremlin power bloc
Eugene de Kock: Apartheid’s sadistic killer that his country cannot forgive

Apartheid’s sadistic killer that his country cannot forgive

The debate rages in South Africa over whether Eugene de Kock should ever be released from jail
Standing my ground: If sitting is bad for your health, what happens when you stay on your feet for a whole month?

Standing my ground

If sitting is bad for your health, what happens when you stay on your feet for a whole month?
Commonwealth Games 2014: Dai Greene prays for chance to rebuild after injury agony

Greene prays for chance to rebuild after injury agony

Welsh hurdler was World, European and Commonwealth champion, but then the injuries crept in
Israel-Gaza conflict: Secret report helps Israelis to hide facts

Patrick Cockburn: Secret report helps Israel to hide facts

The slickness of Israel's spokesmen is rooted in directions set down by pollster Frank Luntz
The man who dared to go on holiday

The man who dared to go on holiday

New York's mayor has taken a vacation - in a nation that has still to enforce paid leave, it caused quite a stir, reports Rupert Cornwell
Best comedians: How the professionals go about their funny business, from Sarah Millican to Marcus Brigstocke

Best comedians: How the professionals go about their funny business

For all those wanting to know how stand-ups keep standing, here are some of the best moments
The Guest List 2014: Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks

The Guest List 2014

Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks
Jokes on Hollywood: 'With comedy film audiences shrinking, it’s time to move on'

Jokes on Hollywood

With comedy film audiences shrinking, it’s time to move on
It's the best of British art... but not all is on display

It's the best of British art... but not all is on display

Voted for by the British public, the artworks on Art Everywhere posters may be the only place where they can be seen
Critic claims 'I was the inspiration for Blanche DuBois'

Critic claims 'I was the inspiration for Blanche DuBois'

Blanche Marvin reveals how Tennessee Williams used her name and an off-the-cuff remark to create an iconic character
Sometimes it's hard to be a literary novelist

Sometimes it's hard to be a literary novelist

Websites offering your ebooks for nothing is only the latest disrespect the modern writer is subjected to, says DJ Taylor
Edinburgh Fringe 2014: The comedy highlights, from Bridget Christie to Jack Dee

Edinburgh Fringe 2014

The comedy highlights, from Bridget Christie to Jack Dee
Dame Jenny Abramsky: 'We have to rethink. If not, museums and parks will close'

Dame Jenny Abramsky: 'We have to rethink. If not, museums and parks will close'

The woman stepping down as chair of the Heritage Lottery Fund is worried