Shares in Balfour Beatty, the UK’s largest construction group, rose 8% yesterday as the City of London decided that its low share price made it both a good investment, and a target for acquisition.
Bank of America Merrill Lynch, Liberum Capital and RBC Capital were among the finance houses who advised their clients to buy Balfour Shares. Bank of America said it expected Balfour’s share price to rise from 176p to a target price of 230p; Liberum Capital was even more optimistic, with a target price of 250p.
Joe Brent, head of research at Liberum, said in his note to clients that the firm now had a strong balance sheet, and he thought the appointment of Leo Quinn as chief executive would improve the firm’s performance.
Brent wrote: "Leo Quinn (pictured) is a remarkable hire as chief executive (although the shares at QinetiQ underperformed by 4% during his tenure). We expect him to have a low tolerance for loss makers, and to take whatever steps necessary to ensure sufficient balance sheet strength."
He added that Balfour’s well publicised problems with non-performing contracts, which have led to five profit warnings over the past two years, were confined to the UK, and the firm’s businesses in the Middle East, Asia Pacific and the US were performing in line with expectations.
There was some good news for the UK business earlier today when it was selected by the London Legacy Development Corporation to build 1,500 homes in east London’s Olympic Park. Balfour is leading a consortium that includes social housing company Places for People and architect Studio Egret West.
Balfour’s star performer over recent years has been Parsons Brinckerhoff, its professional services subsidiary. Although this was sold at the end of last month, Balfour still holds a portfolio of PPP assets worth about $1.5bn – almost as much as its market capitalisation of $1.9bn.
Balfour sold a group of loss-making German rail businesses to the Austrian firm Rhomberg Sersa Rail Group earlier this month, a transaction that amounted to a $40m loss.
