Should you buy into Britain’s biggest builder?

By Associate Editor David Stevenson Jan 10, 2012

David Stevenson

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Balfour Beatty (LSE: BBY) is the UK’s largest-listed construction company, involved across the civil engineering spectrum. This morning it has released its latest trading statement.

What does this say?

Not much, to be honest. “Overall trading remains in line with our expectations”, say Balfour Beatty. That’s consistent with what it said at the half-year stage in November 2011. During the year, US construction orders have increased, but UK ones have shrunk. As for the future, the construction market is tough, and is likely to stay that way, reckons the company.

Isn’t this all rather dull?

On the contrary. For value seekers, Balfour Beatty is actually very interesting. Sure, the firm operates in a very competitive industry, but its shares have been factoring this in: they’ve fallen almost 40% since end-2007. This has left the valution sitting at bargain basement levels. We tipped the stock a month ago, and it has since climbed 10%. But that’s not the end of the story.

What’s our view now?

Balfour Beatty has a market cap of just £1.9bn. Last year’s sales are likely to have been around £10bn. But the order book is more than £15bn. So even without extra business, the firm has plenty of work on its books.

And it’s still winning business. This week it was awarded a £50m ten-year deal to run the future Queen Elizabeth Olympic Park in East London. Further, the long-term value of this work may grow “significantly beyond the initial operational phase”. The contract starts with the opening of this summer’s Olympics. Further, extra infrastructure spending – as announced in last year’s Autumn Statement - should boost the UK construction industry overall.

It all adds up to making Balfour Beatty cheap. The balance sheet is sound: there’s no net debt. On a p/e below eight and a prospective yield of 5%, this stock could still be worth tucking away long-term.

Balfour Beatty (LSE: BBY)

Balfour Beatty share price chart

Source: Bloomberg

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