Balfour Beatty has been through the mire recently, with several profit warnings, changes of top executives and a failed bid from Carillion.
But it looked brighter after a positive note from Bank of America Merrill Lynch, which moved from neutral to buy albeit with a target price cut from 250p to 230p, based on a recovery at the business and the prospect of Carillion taking another tilt at the company come next February. Merrill analyst Marcin Wojtal said:
Five profit warnings in UK construction in the past two years have led to significant underperformance versus the sector and the stock is down 50% from its highs in February 2014. However, the balance sheet is now solid (£200m estimated net cash in December 2014) post the sale of Parsons Brinckerhoff, and most businesses (notably public private partnerships and US construction) are performing well. KPMG’s review of contracts in UK construction is due by year-end and creates certain overhang. However, this looks priced in, as to justify the current share price based on a sum of the price, we would have to assume UK construction is worth a negative £500m.
We think [Balfour] retains significant M&A appeal for a player looking for a back door to its portfolio of PPP assets and willing to take a 2-3 year view, before potential UK restructuring starts bearing fruit.
Under UK takeover rules, Carillion cannot make a hostile bid for Balfour Beatty for six months, ie, until February 2015. Both companies could also hypothetically re- engage in tie-up talks (ie after expiry of three months lock-up post the rejection in 19 August 2014).
Its shares closed 13.7p or more than 8% higher at 176.8p.
Overall the market drifted in negative territory for much of the day, but the FTSE 100 finally finished virtually unchanged, up just 1.35 points at 6731.14.
Supermarkets were under pressure on talk of a negative note on the sector and worries about price wars ahead of the key holiday period. J Sainsbury dropped 10.9p to 241.4p while Tesco, which faces being sued by shareholders over the black hole discovered in its profits, was down 5.25p at 188.15p.
B&Q owner Kingfisher fell 12.5p to 291.3p after disappointing results from its French business, while mining shares dropped again on weak metal prices. BHP Billiton lost 27.5p to 1593.5p and Anglo American 24.5p to 1329.5p.
But Sky climbed 23p to 918p after Goldman resumed coverage with a neutral rating and 990p price target.
Among the mid-caps, positive updates lifted pubs group Mitchells & Butlers 27.1p to 376.1p and financial group Paragon 29p to 406.9p.
