Investment Column: Picture quality finally restored at Virgin

Balfour Beatty; Grainger

Our view: Buy

Share price: 1,304p (-46p)

Virgin Media, a company that purely focuses on customers in the UK, is finally becoming visible to the country's investors as well. The group, whose primary listing is on Nasdaq, has appointed Goldman Sachs as its first corporate broker, and revealed that 20 per cent of its shares are now held in London, 10 months after it took a secondary listing here.

The company is almost unrecognisable from the one formed from the merger of NTL and Telewest, and looks good for growth thanks to the fact its cable network offers the fastest internet speeds currently on the market. As well as attracting new customers, the holy grail for Virgin and its rivals Sky and BT is to encourage those customers to take more services and pay more for those services. Virgin, which can offer its clients the "quad play" of internet, landline telephone, mobile phone and TV, has increased customer numbers and Arpu – the amount they spend – for the past four quarters.

Don't be alarmed by the negative numbers in the profit line. It is slowly writing down the £13bn that were invested digging up roads and laying cables in the Eighties, so depreciation and amortisation lops off £300m every quarter. What's important is free cash flow has been growing. It was £276m in 2008, and the broker Execution estimates it will grow to £559m by 2012.

Virgin still labours under its debts, yet this is no longer the investment risk it once was because none fall due in the next five years. The business is also highly operationally geared, with a rise in top line revenues of 7 per cent increasing free cash flow by a chunky 37 per cent. The company was confident enough to launch a surprise £700m capital return to its shareholders last month, which prompted a series of analyst upgrades.

In the current market for broadband and pay TV, the sure financial footing gives us confidence to recommend a buy.

Balfour Beatty

Our view: Buy

Share price: 259.5p (-3.4p)

Balfour Beatty seems too good to be true. In a construction and contractor sector best described as struggling, thanks to the Government's determination to introduce swingeing cuts, Balfour is going great guns.

Its first half results showed a 32 per cent pre-tax profit rise, thanks largely to its buyout last year of US peer Parsons Brinckerhoff. Chief executive Ian Tyler says that even stripping out the effect of Parsons, the group grew underlying earnings per share by a not unimpressive 2 per cent.

So what of the cuts? Mr Tyler says he is confident in Balfour's position as a global infrastructure player. There is plenty of work in emerging markets. The group relies on UK capital spending for only 20 per cent of its income, and that figure is declining. And at least power projects in this country are likely to be spared the worst of the cuts.

Investors might expect Balfour to be pricy given its enviable position, but in fact, trading on a 2010 price to earnings ratio of 7.6 times, Balfour Beatty's stock comes in significantly below the 9.1 times sector average. An increase in the dividend, giving a yield of 5 per cent, should encourage any doubters.

We don't like the construction and infrastructure sector, and that's the Government's fault. But we do like Balfour Beatty. Buy.


Our view: Buy

Share price: 112.6p (-1.7p)

Grainger, Britain's biggest residential property company, yesterday trumpeted the resilience of its portfolio, despite it reinforcing recent downbeat industry data that price growth in the housing market has "slowed". While its completed, and pipeline of, sales of £154.8m for the 10 months to 31 July was behind last year's figure of £180m, this is explained by Grainger's stated strategy of selling fewer lower margin units.

Over the 10 months, Grainger sold 593 vacant units for £90.1m at a margin of 42.6 per cent, compared to margins of 35.5 per cent on sales of 625 units for £86m last year.

It achieved these sales at values which were 6.9 per cent ahead of its September 2009 vacant possession values, above the average 3 per cent rise documented in the Halifax and Nationwide surveys.

Back in April, we advised buying Grainger at 135.5p, which does not look too clever now. Still, note that Grainger trades at a 40 per cent discount to its forecast adjusted net asset value for the year to September. Despite an uncertain outlook for the UK housing market – further house price falls are likely given constrained lending from banks and building societies – we think that sort of value is an opportunity not to be missed. Buy.

Arts and Entertainment
On set of the Secret Cinema's Back to the Future event
filmBut why were Back to the Future screenings cancelled?
Susan Sarandon described David Bowie as
peopleSusan Sarandon reveals more on her David Bowie romance
Lewis Hamilton walks back to the pit lane with his Mercedes burning in the background
Formula 1
Arts and Entertainment
The new characters were announced yesterday at San Diego Comic Con
comic-con 2014
Arsenal supporters gather for a recent ‘fan party’ in New Jersey
ebookA unique anthology of reporting and analysis of a crucial period of history
Arts and Entertainment
No Devotion's Geoff Rickly and Stuart Richardson
musicReview: No Devotion, O2 Academy Islington, London
newsComedy club forced to apologise as maggots eating a dead pigeon fall out of air-conditioning
Life and Style
Balmain's autumn/winter 2014 campaign, shot by Mario Sorrenti and featuring Binx Walton, Cara Delevingne, Jourdan Dunn, Ysaunny Brito, Issa Lish and Kayla Scott
fashionHow Olivier Rousteing is revitalising the house of Balmain
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

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...

Trainee Recruitment Consultants - Banking & Finance

£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

Day In a Page

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
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
Edinburgh Fringe 2014: The comedy highlights, from Bridget Christie to Jack Dee

Edinburgh Fringe 2014

The comedy highlights, from Bridget Christie to Jack Dee
Evan Davis: The BBC’s wolf in sheep’s clothing to take over at Newsnight

The BBC’s wolf in sheep’s clothing

What will Evan Davis be like on Newsnight?
Finding the names for America’s shame: What happens to the immigrants crossing the US-Mexico border without documents who never make it past the Arizona desert?

Finding the names for America’s shame

The immigrants crossing the US-Mexico border without documents who never make it past the Arizona desert
Inside a church for Born Again Christians: Speaking to God in a Manchester multiplex

Inside a church for Born Again Christians

As Britain's Anglican church struggles to establish its modern identity, one branch of Christianity is booming
Rihanna, Kim Kardashian and me: How Olivier Rousteing is revitalising the house of Balmain

Olivier Rousteing is revitalising the house of Balmain

Parisian couturier Pierre Balmain made his name dressing the mid-century jet set. Today, Olivier Rousteing – heir to the house Pierre built – is celebrating their 21st-century equivalents. The result? Nothing short of Balmania
Cancer, cardiac arrest, HIV and homelessness - and he's only 39

Incredible survival story of David Tovey

Tovey went from cooking for the Queen to rifling through bins for his supper. His is a startling story of endurance against the odds – and of a social safety net failing at every turn
Backhanders, bribery and abuses of power have soared in China as economy surges

Bribery and abuses of power soar in China

The bribery is fuelled by the surge in China's economy but the rules of corruption are subtle and unspoken, finds Evan Osnos, as he learns the dark arts from a master
Commonwealth Games 2014: Highland terriers stole the show at the opening ceremony

Highland terriers steal the show at opening ceremony

Gillian Orr explores why a dog loved by film stars and presidents is finally having its day
German art world rocked as artists use renowned fat sculpture to distil schnapps

Brewing the fat from artwork angers widow of sculptor

Part of Joseph Beuys' 1982 sculpture 'Fettecke' used to distil schnapps
BBC's The Secret History of Our Streets reveals a fascinating window into Britain's past

BBC takes viewers back down memory lane

The Secret History of Our Streets, which returns with three films looking at Scottish streets, is the inverse of Benefits Street - delivering warmth instead of cynicism
Joe, film review: Nicolas Cage delivers an astonishing performance in low budget drama

Nicolas Cage shines in low-budget drama Joe

Cage plays an ex-con in David Gordon Green's independent drama, which has been adapted from a novel by Larry Brown
How to make your own gourmet ice lollies, granitas, slushy cocktails and frozen yoghurt

Make your own ice lollies and frozen yoghurt

Think outside the cool box for this summer's tempting frozen treats
Ford Fiesta is UK's most popular car of all-time, with sales topping 4.1 million since 1976

Fiesta is UK's most popular car of all-time

Sales have topped 4.1 million since 1976. To celebrate this milestone, four Independent writers recall their Fiestas with pride