Balfour Beatty released its AGM trading update, with the group expecting full-year contributions to profit from its operating businesses to be broadly in line with 2022 levels.
In the first quarter, the group won several contracts but the order book declined from £17.4bn to £17bn.
The average monthly net cash balance was £740m in the first quarter, compared to £815m seen at the end of 2022.
The group expects to complete £150m worth of share buybacks this year, with £75m already completed as at 12 May.
The shares fell 1.7% following the announcement.
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Our view
Balfour Beatty's trading update didn't pack any surprises, with full-year profits from the group's Construction and Support services are expected to be broadly in line with 2022 levels.
Even in the good times margins in the construction sector are pitifully thin. That's why we were pleased to see the operating profit margin begin to creep back up towards 2% last year. Such low margins leave little room for error.
Some of the group's private sector property projects, which went wrong due to the pandemic, were a drag on profits. No one saw the shutdowns coming, but Balfour's now become a little choosier about its private-sector work. That's particularly true in the UK, where last we heard, the public sector made up more than 90% future orders - meaning revenues are more likely to hold up in an economic downturn.
Selecting contracts where the group has expert knowledge along with longer contracts reduces risk and increases earnings visibility. Infrastructure spend is a key priority in the US and UK, and there was some positive news out of the UK back in November. The government renewed its commitment to infrastructure investment, which should provide demand for large construction groups like Balfour for years to come.
Low margins mean inflation has the potential to upset progress moving forward. But while construction and support services need to mitigate the impacts, the investment portfolio is a benefactor. Both the UK and US portfolios are positively linked to inflation, which helps the wider group offset the challenges in other areas.
Looking back, the pandemic didn't leave behind much scarring on the balance sheet. But the net cash position did start to creep lower in this first quarter. Given there's plenty of competition for the group's cash resources, including a pledge to continue buying back shares, we'd like to see cash generation improve from current levels to help underpin the buybacks. Remember, there's no guarantee of investor returns.
If a government-led infrastructure boom fails to make it through to the bottom line, then shareholder returns will likely be back on the chopping block. This uncertainty is reflected in Balfour still trading below its longer-term average on a price/earnings basis.
Balfour Beatty key facts
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