Balfour Beatty has undergone a significant transformation since new management took the helm in early 2015 © Bloomberg
Do you know a builder who sticks to the task at hand, hasn’t taken on too much work, doesn’t claim to be permanently cash-strapped and finishes a job on time?
No, me neither. Nor, it seems, do many investors. Listed construction companies — as opposed to housebuilders — have gained something of a cowboy reputation in recent years. Take Carillion, which is still trying to prop up its creaking finances under a weight of debt and contract write-offs. If it did loft conversions, it would have been chased down the road by a Channel 5 TV presenter years ago.
But analysts seems to think they’ve found one builder they can recommend to friends: Leo Quinn. Or, rather, the company he is trying to turn round: Balfour Beatty. And, on Wednesday, enough of those friends took up their recommendation to lift the group’s share price 7.5 per cent.
Why? Because Balfour’s half-year results appeared to dispel most of the concerns about Builders From Hell.
Having agreed to split his task into three phases over five years — fixing cash flow and governance, rebuilding margins and then outperforming the market — Mr Quinn is starting phase two slightly ahead of schedule. Margins in Balfour’s support services businesses were due to reach 3-5 per cent by the second half of 2018, but they are at 3.1 per cent already. US construction margins are within 10 basis points of their 1-2 per cent target today. UK construction is on track for its target of 2-3 per cent margins within 18 months. In fact, all of the group’s divisions are profitable without any reliance on disposal gains.
Mr Quinn is also taking on less work to ensure margin quality. Balfour’s order book is 8 per cent smaller than last year, at £11.4bn, as the company has become more selective about bidding and exited low-value contracts in the US. Mr Quinn even suggested that if it shrank another £500m he’d be quite comfortable.
He is not complaining about being short of cash, either. Balfour reported closing net cash of £161m, and average net cash during the first half of £45m — compared with average net borrowings of £69m in the same period last year. Analysts were more than pleasantly surprised, having forecast £30m net debt, and suggested this was the key difference between Balfour and the rest of the sector.
He even looks likely to finish the turnround on time. Except that there is still a lot of structural work to do. Phase three, when investors can hope to see the fruits of these labours, will not start until 2019. Wednesday’s reaction, then, was probably more one of relief — akin to returning home early to find the builders still at work, rather than the dreaded pile of abandoned tools, a few empty coffee mugs and a paint-spattered radio.
matthew.vincent@ft.com