The broker says a focus on net cash is too simplistic a way to assess Balfour and despite a decline in net cash its analysis shows that the overall balance sheet has strengthened over the past five years.
Even in a worst case trading scenario, Balfour has headroom in its debt facilities. Furthermore, while 2013 is set to be a challenging year, leading indicators in the UK and US have shown some improvements, it adds.
"We think Balfour’s current share price does not fully reflect the underlying value of its businesses and market positions.
"In particular, we think analyst valuations based on current cyclically depressed construction margins, and misplaced concern over balance sheet strength, have left Balfour’s stock price temporarily depressed.
"Given the scope for cyclical recovery in margins, the current stock price is a good entry point,"
Berenberg has a target price of 290p.