Interactive Investor

Chinese mull bid for Balfour Beatty

8th June 2015 16:46

Harriet Mann from interactive investor

Balfour Beatty is in the process of a major turnaround following six profit warnings in a painful two years. Investor confidence is certainly on the up, and now Balfour's £138 million Crossrail contract has got a Chinese construction giant interested in the UK firm.

China Civil Engineering Construction Corporation (CCECC), which signed a $600 million Egyptian national railway track contract in April, is said to have done the sums, according to The Sunday Times. The deal is rumoured to value Balfour at £2 billion, which represents an 18% premium to Friday’s close and an 11% premium to its current £1.8 billion market capitalisation following today's rally.

After a dismal 2014, chief executive Leo Quinn was parachuted in from defence firm Qinetiq at the beginning of this year to help turn things around. He has previously told the press he wants to keep Balfour as an independent company. Much, then, will depend on what the Chinese may be prepared to pay.

(click to enlarge)

Without a bid, further upside might take time. In March, Quinn warned the market of "major short-term challenges", which contributed to a £304 million pre-tax loss and the axing of the dividend. The much-debated sale of its Parsons Brinckerhoff (PB) US consultancy business for £234 million softened the blow.

Since the millennium, a number of acquisitions helped the construction group's revenue jump four-fold, but the failure to integrate them properly left Balfour as an overly complex firm unable to weather the industry downturn. By refusing to hang onto Parsons - in order to return up to £200 million to shareholders - the group was able to shake off takeover attention from rival Carillion. Unfortunately for investors, the group's sixth profit warning in two years forced management to cancel its share buy-back scheme. Balfour also rejected a £1 billion approach from the John Laing Infrastructure Fund.

The shares jumped 4% to 260p on Monday.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Related Categories