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Balfour Beatty has gone from bad to worse over the past 12 months, experiencing a number of profit warnings, a failed merger and a change of CEO. In 2014, the firm announced three profit warnings and to make matters worse, at the beginning of this year the group cut its forecasts by £70 million because its contracts were not managed properly. The company scrapped its plans for a £200 million share buyback scheme and the dividend policy is under review, adding to shareholders’ concerns.
At the back end of last year a merger was proposed between Balfour Beatty and Carillion, with the aim to create a construction company worth £3 billion, but the deal fell through as Balfour Beatty didn’t want to spin off the Parson Brinckerhoff unit. Carillion was not in favour of the deal as it wanted Parson Brinckerhoff to be included in the new business – the division is seen as the jewel of Balfour Beatty. Since knocking back the merger with Carillion, Balfour Beatty has agreed to sell Parson Brinckerhoff to a US company for £820 million.
Leo Quinn was drafted in as CEO near the end of last year and has stated the company has become ‘too complex and too devolved’, but also said that he has an ‘action plan’ in place. Mr Quinn will have his work cut out for him as the company has problems ranging from high staff turnover to write-downs for inefficient handling for projects.
The consensus is for revenue of £8.69 billion and net adjusted income of £23.76 million when Balfour Beatty announces its full-year figures. These forecasts represent a 0.5% drop in revenue and an 80% decline in adjusted net income. The company will also reveal its second-half figures on the same date, and the consensus is for revenue of £5.02 billion which compares with the first-half revenue of £4.85 billion – this came in below the expected £4.91 billion.
Equity analysts are bullish on Balfour Beatty, and out of the 13 recommendations five are buys, six are holds, and two are sells. The average target price is 242p, which is 4% above the current price. Investment banks are more bullish on Carillion. Out of the 14 ratings eights are buys, four are holds, and two are sells. The average target price is 377p, which is 12% above the current price.
The share price has been in a downward trend since December 2007 and the stock is receiving support at the 50-day moving average of 229p. A drop below this metric will bring 200p into sight, and beyond that traders will look to 180p. If the 50-DMA is held the resistance at 260p will be the first target. If that mark is cleared 280p will be brought into play.