Build your portfolio with Balfour Beatty

Balfour Beatty is the largest UK based construction company with annual revenue of over £10billion. They are also internationally active especially in the USA and in Hong Kong through their 50% joint venture Gammon. A year or so ago they purchased Parsons Brinckerhoff a consultancy company which has a global presence and helps them win more demanding infrastructure projects.

They have four main sources of income.

1 Design/project management

2 Construction/Upgrade

3 Maintain/Operate

4 Finance/Develop

The percentage revenue split by division and geography is below.

UK design 2%     UK construction 33%       UK Maintain 14%              UK finance 6%

USA design 9%  USA construction 19%    USA Maintain 0%             USA finance 1%

ROW design 5% ROW construction 11%  ROW Maintain 0%            ROW finance 0%

As you can see UK revenues are just over half of total revenues but the USA and the rest of the world are becoming increasingly important.

Although the general construction sector in the UK is suffering through the recession there is a long term need for investment in infrastructure such as Crossrail, HS2, Nuclear decommissioning and new reactors, wind power, waste management, roads, etc. Balfour Beatty is well placed to play a big part in this. In the USA the situation is similar there is a need to upgrade/renew existing infrastructure. A lot of cities are also contemplating mass transit systems something which Balfour Beatty through Parsons Brinckerhoff should be a main player in. They have for example won a massive project in Denver.

Internationally they are mainly active in construction in Hong Kong and the rest of the world they are active via Parsons Brinckerhoff. They plan to enter new markets when Parsons Brinkerhoff gives them an entrance via their consultancy services.

Balfour Beatty’s order book stands at £15billion and the good news for investors is that unlike some competitors Balfour Beatty only place firm orders on their order book. They don’t add projects at preferred bidder stage or frameworks which they have been awarded a place on. As there are various projects like this in the pipeline the actual picture is looking pretty rosy. The shares are on a current p/e of 8 and a dividend yield of 4.9%.