Cash is king for Balfour Beatty and Admiral results saluted

Wednesday, August 14, 2019 - 09:51

“Despite a strong showing in Asia and the US overnight the FTSE 100 surrendered gains made at the bell to flatline.

“Any optimism over the Trump administration’s decision to delay tariffs on Chinese goods apparently proving pretty short lived,” says AJ Bell Investment Director Russ Mould.

Balfour Beatty

“Investors in embattled construction firm Kier or those unlucky enough to be shareholders in Carillion when it went bust must be looking at today’s first half results from rival Balfour Beatty and turning green with envy.

“Given the problems faced by the wider industry it is not a surprise that turnaround specialist Leo Quinn’s tenure as CEO has not been all smooth sailing.

“However, Quinn, who has taken on the ‘Mr Fix-it’ role at other businesses including defence business QinetiQ, appears to have quite correctly focused on cash generation to provide the firm with solid foundations.

“Cash is the lifeblood of any business and it is a cash crunch which is dogging Kier at present and put Carillion in a terminal position.

“The increase in cash expectations for the full year is underpinned by a sensible approach of taking out costs where possible and being more selective in the work taken on to prioritise projects which can deliver higher margins.

“This is a crucial point as a lot of the issues encountered by this sector have resulted from being overly ambitious when bidding for contracts.

“While Quinn has done a good job of consolidating Balfour’s position, achieving material growth might hinge on the fate of the HS2 and Heathrow expansion infrastructure developments.

“While a potential scandal in the US over the processing of property maintenance work orders and related fees at two Air Force bases – Balfour appointing outside counsel to look at the episode – is a fly in the ointment.”

Admiral

“Times have been tough for car insurers of late with a competitive market putting significant pressure on premiums, so in this context Admiral’s 4% increase in first half profit deserves a salute.

“Particularly given the company took a sizeable hit from changes to the way compensation awards are calculated which were less generous to the industry than expected.

“Although the company offers other lines of insurance, motor really dominates and with the company prioritising value over volume growth could be hard to come by.

“Today’s better-than-expected numbers were largely driven by reserve releases, or in other words releasing money no longer needed to cover claims.”

These articles are for information purposes only and are not a personal recommendation or advice.


The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.