Balfour Beatty (LSE: BBY), a shining star of the FTSE 250, has been firmly on my radar following the general election. With a market-cap of £2.1bn, and plenty of demand for Britain to get building, this engineering and construction giant looks poised for a bright future. To me, the new government’s ambitious infrastructure plans, and some really impressive fundamentals, make it a company I’m swooning over.
Impressive portfolio of work
I’m a civil engineer by training, and to me the company’s portfolio is nothing short of remarkable. Leading the charge is the construction of the UK’s first nuclear power station in a generation at Hinkley Point. This underscores the company’s prowess in managing complex, large-scale infrastructure developments critical to the nation’s energy future.
The company’s global footprint is showcased in its work at Los Angeles International Airport, where it’s constructing an impressive automated people mover superstructure. This high-tech project highlights a serious ability to execute on the international stage.
The numbers
Recent financial performance reflects the challenges of the construction industry, known for its thin margins. Despite a 10% dip in profits last year, the company’s diverse operations and geographic spread are crucial strengths.
With earnings of £197m and revenue hitting £7.99bn, the company’s financial health’s pretty robust. The company’s price-to-sales (P/S) ratio stands at 0.3 times and its price-to-earnings (P/E) ratio at 10.5 times, making it look pretty undervalued compared to its industry peers, at an average of 14.3 times. Most interesting for me though, the shares are trading at a substantial 42.7% below a discounted cash flow (DCF) fair value estimate.
It’s not going to be the key reason for investing, but the company also offers a decent dividend yield of 2.8%, and a payout ratio of 33%. Both look to be in a fairly good place for potential growth if management chooses to do so.
Over the past year, the shares have returned a solid 16.6%, outpacing the UK market’s 6.4% return over the same period.
Despite an eventful period in recent history, the shares have been surprisingly stable, with a weekly volatility of about 3% over the past year.
But it’s not always calm in this sector, and there are a lot of risks I keep an eye on. The increasing complexity of supply chains and regulation pose formidable challenges. Keeping up with these evolving standards often leads to spiralling operational costs and potential project delays. I’m also conscious of the ever-present threat of cyber-attacks on critical infrastructure. This underscores the need for robust cybersecurity measures, adding another layer of complexity and cost.
One for the future
Despite some challenges, I see the company as more than just a name in the FTSE 250. It’s a really compelling story of resilience, innovation, and strategic prowess.
Its involvement in transformative projects, both domestically and internationally, screams technical excellence. While the construction sector’s thin margins and inherent risks are ever-present, management’s strategic diversity, solid financial foundations, and promising growth trajectory make it a compelling investment to me.
I see a bright future ahead here, so I’ll be buying some shares at the next opportunity.
