Balfour Beatty PLC

Balfour Beatty Plc (BBY) is a provider of infrastructure solutions related to management services, maintenance and upgrade in road and rail, utility infrastructure and power transmission. The company’s operations are divided into three reportable segments being Construction Services, Support Services and Infrastructure Investments.

On 13^th December 2019, the company will announce the Trading Update.

Financial Highlights (for the half-year ended 28 June 2019, £million)

(Source: Interim Reports, Company Website)

For the H1 of the Financial year 2019, Balfour Beatty Plc’s underlying revenue stood at £3,881 millionas against £3,836 million for the previous year of the same period.  The company’s total revenue stood at £3,884 million in the H1 of the financial year 2019 as against £3,839 million in the H1 of the financial year 2018.

The group’s underlying profit from operations for the first half of FY2019 was at £72 millionas compared to £66 million in H1 FY2018. The group’s Reported operating profit for H1 FY2019 stood at £71 million as compared to £60 million in H1 FY2018. The group’s adjusted PBT (Profit before tax) for H1 FY2019 stood at £ 64 million as compared to £56 million in H1 FY2018. The group’s Reported PBT (Profit before tax) for the first half of FY2019 stood at £63 million as compared to £50 million in H1 FY2018.

The adjusted Net profit stood at £54 million in H1 FY2019against £52 million in H1 FY2018. The reported PAT (Profit after tax) stood at £48 million in H1 FY2019 against £69 million in H1 FY2018.  The adjusted Basic earnings per share stood at 7.6 pence in H1 FY2019 as compared to 7.5 pence in H1 FY2018.

The Basic earnings per share stood at 6.7 pence in H1 FY2019as compared to 10.1 pence in H1 FY2018. The Diluted earnings per share stood at 6.6 pence in H1 FY2019 as compared to 10 pence in H1 FY2018. The company’s interim dividend for the H1 FY2019 was up by 31 per cent to 2.1 pence per share as against 1.6 pence per share in H1 FY2018.

Share Price Performance

Daily Chart as at November-08-19, before the market closed (Source: Thomson Reuters)

On 8^th November 2019, Balfour Beatty PLC shares were trading at GBX 231.60 at the time of writing before the market close (at 12:40 PM GMT), down by 0.60% against the previous day closing price. Stock's 52 weeks High and Low are GBX 295.80/GBX 192.30. The company's stock beta was 0.46, reflecting the lower volatility as compared to the benchmark index.

Valuation Methodology


Conclusion
The company had shown decent growth in the first half of the financial year 2019. The company’s top-line performance has improved, but the bottom-line performance declined for the period. The company’s operations are impacted by risks related to market trends, political change and change in the regulatory authority. The uncertainty created due to ongoing Brexit will have a negative impact on the company’s financial and operational performance as it will impact the company’s supply chain. The company, despite the decent financial performance, is still behind the industry and the company’s board is confident to revert to industry standards by the end of this financial year. With the failure to manage financial resources properly and forecast material exposures, the company might encounter financial risks.

Based on the above risks as aligned with the company’s operations, we have given a "WATCH" recommendation at the closing price of GBX 233 (as on 7^th November 2019) with support from few catalysts needs to be evaluated at a later stage.

Castings PLC

Castings PLC (CGS) is a United Kingdom-based iron casting and machining company. The group caters to both global and domestic markets. The company’s segments comprise Machining and Foundry operations. The group has over three trading operations, with William Lee Limited, CNC Speedwell Limited, and Castings (Brownhills).

Financial Highlights (for the six months ended 30 September 2019, £’000)

(Source: Interim Report, Company Website)

For the six months ended 30 September 2019, the reported revenue surged to £73.1 millionas compared with the corresponding period of the last year. During the first three months of the period, the customer demand was robust and followed by some softening in Q2 FY20. Overall, the output increased by 5.4% to 25,200 tonnes in Foundry operations. In the current period, the external sales revenue was up by 7.9% to £70.1 million in foundry operations segment.In Machining operation segment, CNC Speedwell’s external revenue decreased by 8.1% to £3 million as compared to the previous period. The profit from operations stood at £7.2 million, an increase from the corresponding period of the last year. Basic and diluted earnings per share increased to 13.64 pence against the 10.72 pence in H1 FY19. An interim dividend per share of 3.48 pence has been declared and will be paid on January 2, 2020, to shareholders.

Share Price Performance
 
Daily Chart as at November-08-19, before the market closed (Source: Thomson Reuters)

On 8^th November 2019, Castings PLC shares were trading at GBX 392.72 at the time of writing before the market close (at 1:40 PM GMT), up by 4.17% against the previous day closing price. Stock's 52 weeks High and Low are GBX 468/GBX 341. The company's stock beta was negative 0.01, reflecting the inverse volatility as compared to the benchmark index.

Valuation Methodology


Conclusion
There are several uncertainties and potential risks which could have a material effect on the company’s performance in the second half of the financial year 2020. The uncertainty and general election surrounding the future relationship with Europe continues to cause concern over the short-term outlook. The group’s board will continue to monitor developments, consider the effect on the company’s businesses and take appropriate action to help mitigate any risks associated with the United Kingdom leaving the European Union.

From the perspective of the market, the commercial vehicle sector has stated a decline in the order intake in Europe. Accordingly, the company has seen a decrease in schedules from this element of the client base, which represents 70 per cent of the company’s revenue. The group continues to be on productivity enhancements within the production processes and the accomplishment of the automation of finishing processes. The company expects decent performance in the second half of the financial year 2020 and into 2020/21. The programme of automation investment started in the machining business following the successful growth of a pilot cell in the current period.
Also, the present technical trends indicate that prices could correct in near term, as at the current trading level of GBX 392.72, shares were traded above the upper Bollinger Band®, which is a deviation from the 20-day moving average price and generally indicates some correction is due in near-term. Stock 3-day, 9-day and 14-day Relative Strength Index were quoting at 76, 68 and 65, respectively, which reflects that shares were hovering in an overbought zone and could correct shortly.

Based on the above risks as aligned with the company’s operations, we have given a "WATCH" recommendation at the current price of GBX 392.72 (as on 8th November 2019, before the market close) with support from few catalysts needs to be evaluated at a later stage.
 
*All forecasted figures and peers have been taken from Thomson Reuters.

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