With leading shares heading lower as commodity prices continue to slide, an exception is Balfour Beatty.
The troubled infrastructure fund, which has issued a number of profit warnings and has poached Leo Quinn from defence group Qinetiq to lead a turnaround, has jumped 9.2p or 5% to 192.5p on hopes of an auction for a key part of its assets.
John Laing Infrastructure Fund has made a £1bn offer for Balfour’s portfolio of public private partnership assets, which operate in education, health and other sectors. JLIF has fallen 2.3% to 120.4p after it said it would issue shares to fund the transaction.
But analysts suggested the offer price was on the low side and could attract rival bidders. Meanwhile Carillion, which was rebuffed in an offer for the whole of Balfour Beatty, could return in February.
Liberum said:
We do not think that this is a very generous offer. Balfours’ own conservative directors value was £1,051m at the interims, although there will have been some changes since then including the closure of the Greater Gabbard OFTO |(£15m of equity), the unwinding of the discount and disposals (we assume gains of £33m in the second half or proceeds of £66m assuming two time book). In our mind, even if all of the assets were sold for this low number, the PPP business would still have a material value, note the £170m of equity expected to be invested over the next two years and the likelihood of investments beyond that.
While the Laing offer looks low, it does highlight the significant value of the business. Balfour Beatty’s market cap is £1.3bn; there is at least £1.0bn of PPP assets, we estimate £0.3bn of residual PPP value, we estimate £490m of value on Support Services and £70m of pro forma average cash (£220m of year end cash). This indicates a negative value of £0.6bn for the rest of the business, which is too low, given that most of Construction is performing satisfactorily and the losses can be discontinued (albeit with significant write-offs in January).
Oriel issued a downbeat note of JLIF on the news:
Whilst at this stage there is a lack of information on the proposal, we do think it is likely that in addition to JLIF there are likely to be a number of parties interested in these PFI assets. A large queue of potential buyers could well form, with the danger being that the ‘winning bidder’ is likely to end-up paying a relatively high price for the assets. A £1bn equity issue would double JLIF’s size from its current market cap of £1bn and some investors are likely to welcome the increased stockmarket liquidity associated with an enlarged JLIF. The market currently seems to have an insatiable appetite for listed infrastructure, with this demonstrated by the mid-teen premia that many of the funds are currently trading on. However, we do think there is likely to be some short-term indigestion if the market has to absorb £1bn of equity from JLIF. We re-iterate our reduce recommendation with a fair value of 113p and we think it likely that the whole listed infrastructure fund sector may see some price weakness in the short-term given the size of this potential equity issuance.
Meanwhile Canaccord Genuity said:
It initially looked unclear as to whether or not this included the US portfolio or just the UK - as this makes a huge difference. The sensitivities are that if it is just UK, we value the UK current assets at £877m plus a value for the UK pipeline of £55m, which makes £932m; so if it is just UK it is a fair price and could be looked at. If it includes the US, which having spoken to Laing’s PR company Finsbury it appears to do, it is a poor price and should be dismissed in our view, as we value the combined UK/US business at £1.3bn in our sum of the parts.
Overall the FTSE 100 has fallen 58.55 points to 6662.07, hit by the continuing decline in the oil price with Brent crude down another 1.77% to $68.91 a barrel.
Gold has dropped nearly $2 to £11.65 an ounce after Switzerland voted in a referendum not to increase its reserves of the precious metal.
And disappointing Chinese manufacturing data for November revived worries about the state of the country’s economy, hitting the mining sector.
So among the fallers are Tullow Oil, down 28.3p at 397.7p and not helped by Citigroup cutting its target price from 935p to 567p with a neutral rating.
Among the mining companies, BHP Billiton is down 53.5p at 1463.5p and Anglo American is 35.5p lower at £12.86. Randgold Resources has fallen 115p to £41.38.
But British Airways owner International Airlines Group is up 9.3p at 466.8p on the prospect of lower fuel costs.
Aberdeen Asset Managment has added after slightly better than expected full year profits of £490m, up 2%, and said it had seen signs of revival in emerging markets. Weakness there had contributed to £20bn of net outflows, but the company said it had recently seen some of the concerns abate and outflows from Asian and emerging market funds had abated.
Peel Hunt issued a buy note, saying:
While today’s results were largely as expected, operating cash generation remains strong, underpinning expectations of good dividend growth in the coming years.
