Although we don’t believe in timing the market or panicking over every stock fluctuation, understanding how a business is performing, competing and changing is vital to sensible investment.
What: Shares in Balfour Beatty (LSE: BBY), the world’s infrastructure business, issued a profit warning this morning, causing the shares to plummet by more than 15% in early trade.
So what? Management pointed towards a “further worsening in the trading performance of the … Engineering Services part of [the] UK construction business“, first highlighted in the company’s first-quarter trading statement. Balfour estimates that this will cause a shortfall of around £35m in profits.
This was recognised after new management was appointed to Engineering Services, which improved transparency: £30m relates to a small number of previously identified existing contracts, largely in and around London.
Now what? Well, it is planning to offset this £35m loss by further disposals over the rest of the calendar year, and still expects overall group pre-tax profit to remain unchanged at £145m-£160m. The end goal is to downscale Balfour to a smaller, more focused business.
Additionally, Balfour is in the midst of a 12- to 18-month restoration programme to “restore our UK construction business to a firm footing”. Indeed, today’s statement confirmed that 90% of its UK construction business is on track in the guise of its regional and major projects business.
So maybe today’s share price plunge provides a buying opportunity for value investors who have been waiting for an entry point into this well-established business. Of course, the decision to ‘buy’ is solely your decision, and requires further research than just a glance at a trading statement.
