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Balfour Beatty order momentum prompts broker upgrade



Broker Liberum has upgraded its price target for contractor Balfour Beatty (LON:BBY) after a trading update, recent contract wins and the appointment of a new chief executive.

Balfour Beatty confirmed today that Andrew McNaughton is stepping up from deputy chief executive to take over the reins following the departure of Ian Tyler in March.

The broker added that McNaughton was the obvious choice, knows the business well and should have the operational skills to deliver the £80mln of announced cost savings.

Balfour Beatty also reported that recent trading had met expectations with the order book standing at £14.2 billion at end November.

Recent wins, such as an eight-year National Grid contract and the tunnel contract won by Gammon in Hong Kong, should lift this to £15bln by the year end. Balfour also yesterday announced it had won the £321mln upgrade to the M25.

“Due to the longer-term nature and back-end loaded margin profile of these contracts, most of the benefit to revenue and profit arises in 2014 and thereafter,” said the company.

UK construction and European rail business overall also remain difficult, it said, while the order book mix is shifting from construction to professional services and support services, and overall, from buildings to infrastructure projects.

Liberum said the share price had increased by 21% since the low in November, and it is raising its target price from 280p to 320p to reflect the order book momentum.

"The calendar year 2013 P/E of 9.3 represents a small premium to the peers, which we believe is justified given the financial strength and geographical diversity," the broker added. 'Buy' is the broker’s investment stance.


Quick facts: Balfour Beatty plc

Price: 217.8 GBX

Market: LSE
Market Cap: £1.5 billion

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