Balfour Beatty forecasts steady profits despite higher costs

Balfour Beatty has said it still expects to post flatlining annual profits as the firm reported trading since January had been in line with forecasts.

Britain’s largest building contractor recorded a £232million underlying operating profit from its earnings-based businesses last year following robust performances from all its construction divisions.

In a short trading update released on Friday, the group declared that the equivalent figure for 2023 is anticipated to be ‘broadly in line’ with the previous year’s levels.

The company’s results in 2022 were heavily boosted by its UK construction segment returning to profitability after it wrote down a number of private sector property projects in central London the prior year.

It further benefited from underlying revenue rising by 11 per cent due to a stronger US dollar, civil engineering activity at its Hong Kong-based joint venture Gammon, and work on the Hinkley Point C and HS2 railway line in the UK.

During the period, Balfour Beatty also increased the size of its order book by 8 per cent to £17.4billion, which subsequently fell back to £17billion at the end of March.   

So far this year, the group has won contracts to upgrade motorways in North Carolina, erect two coastal defence schemes in Denbighshire and construct a new campus at Fife College in Scotland. 

But the largest deal won by Balfour Beatty has been a £1.2billion contract to work on the proposed Lower Thames Crossing, a major road scheme intended to relieve congestion in southern England.

As well as numerous bridges and viaducts, the company will build 10 miles of new roads, including two underpasses beneath the River Thames, with the intention of reducing pressure on the extremely busy Dartford Crossing.

Construction of the project is set to begin in 2024 and be completed by the start of next decade.

When finished, the Lower Thames Crossing will surpass the Queensway Tunnel beneath the River Mersey as Britain’s longest road tunnel and also be the world’s third widest-bored tunnel.

Aarin Chiekrie, equity analyst at Hargreaves Lansdown, said: ‘The UK government renewing its commitment to infrastructure investment at the back end of last year should provide demand for large construction groups like Balfour for years to come.

‘But even in the good times, margins in the construction sector are pitifully thin. Last year we saw the operating margin creep back up towards 2.5 per cent, but such low margins leave little room for error if problems arise.

‘Investors should also remember that Balfour’s fortunes will continue to wax and wane with the wider economy.’

Balfour Beatty shares were 0.5 per cent higher at £391.2p on late Friday afternoon, meaning they have climbed by around 62 per cent in the past 12 months.