Investment Column: Long-term strengths underpin Balfour
Robert Walters; Robert Wiseman
Thursday 07 July 2011
Our view: Hold
Share price: 316.2p (-0.3p)
Investors in Balfour Beatty have endured something of a roller-coaster ride in recent months. The share price graph makes the company look more like some racy technology outfit than a contractor specialising in infrastructure projects.
Much of the volatility has been caused by concerns about the global economy (primarily Britain's). What will be the impact of the choppy economy on the projects that are Balfour's lifeblood?
To begin with, yesterday's trading statement was relatively reassuring. The company is still on track to meet expectations, while its £15bn order book will get a bit of a boost from the acquisition of Howard S Wright in the US, which gives the group a footprint on the West Coast and is consistent with its aim of expanding its reach in the American market.
Of course, there are concerns about Britain, although a number of major projects look set to be retained. The US expansion plan might make some shareholders wary, given the need for that country to get a grip on its deficit.
All the same, we are long-term believers in the infrastructure story, and Balfour is increasingly turning itself into a global business which should be able to cushion itself, to some extent, from the turmoil in particular markets.
With no debt, and full-year profits forecast at £334m against £319m last year, the fundamentals are solid. And trading on about eight times full-year earnings, the shares offer good value compared with those of the company's international peers, with a respectable prospective yield of 4.5 per cent.
For the record, the stock remains little changed from the 322p level at which we said buy in January. Along the way, it has been a bumpy ride – and it may remain so over the coming months. However, Balfour's long-term prospects are strong, in our view.
Our view: Buy
Share price: 313p (+12p)
Robert Walters, which specialises in professional recruitment in 21 countries around the world, put out some solid numbers yesterday, many of them driven by the group's performance outside the UK.
In fact, although the profits from these shores were up slightly in the second quarter of its financial year, the growth in Asia, which is the firm's market, was particularly impressive. Profits rose by nearly 30 per cent from the £19.5m achieved in the second quarter of last year to £25.1m in the three months to this June. The biggest year-on-year profits increase came in the Americas and South Africa, although from a lower base, rising by more than 80 per cent from £800,000 to £1.5m. Europe was also up, climbing by around a third to £10.6m.
The strong performances saw the group's net fees income rise 23 per cent year on year to £49.3m, beating analyst expectations. The chief executive, Robert Walters, was bullish and said the company was targeting further growth markets. It is planning offices in Indonesia, Taiwan and Germany in the second half of the year.
On the downside, the cash position fell from £20m to about half that amount during the quarter, but this followed a dividend payment and covered the cost of a £4m office move.
Numis backed the stock for boasting a greater growth opportunity than its British rivals in the near-term. It is currently valued at the low end of the range with a price of 10 times forward earnings. The fact that the company is investing for growth only adds to the attractions.
Our view: Hold
Share price: 323.5p (+8p)
There were no surprises in yesterday's trading update from Robert Wiseman, the Scottish dairy group, which said its business in the 13 weeks to the beginning of this month was in line with management's expectations.
The release was welcome, coming on the heels of the company's full-year results in May, which showed a sharp decline in profits as Robert Wiseman battled competition from supermarkets and rising commodity costs. And although commodity prices remain high, Wiseman is investing in its business in a bid to cut costs.
We were particularly encouraged by news that the company's recent investment in refrigeration and other equipment at its Manchester dairy had led to a 50 per cent reduction in gas usage, and a saving of 200,000 litres of water every week. Such self-help moves are commendable and argue against a sell. The inflationary pressures, however, make us too cautious to buy.
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