Friday tips round-up: Balfour Beatty, Serco

4th Jul 2014 10:19

Investors in Balfour Beatty have had a bad time of it of late. The UK construction group likes big, complex projects but during the recession the appetite for those was understandably curtailed. Hence, the company went after low margin work. The result is that while its UK engineering services arm generates only 3% of the firm's revenues had it not been for asset disposals the company's pre-tax profits would have taken a 20% hit.Yes, construction is a late cycle business, which explains why those big contracts have not yet returned. However, it remains to be seen if the Executive Chairman, given that the Chief Executive was recently sacked, will be able to clean up existing contracts. Furthermore, the firm is still cautious about new work. As well, it remains to be seen just how profitable and swift the planned sale of its US design and project management business will be. Hence, more negative surprises may still lie ahead, writes the Financial Times' Lex column. Outsourcing group Serco Chief Executive Rupert Soames has quite a task on his hands. The company is carrying out a strategic review of all the contracts across the group and further provisions cannot be ruled out. In particular, a contract for providing accommodation to asylum seekers and several in clinical healthcare may require further write-downs. As well, the publication of said review may be accompanied by a rights issue. On top of those worries, three significant contracts, including the Docklands Light Railway in London and Australian immigration handling need to re-bid this year. That potentially entails the loss of £650m in annual revenues. On the plus side, the UK government has said that Serco will again be able to bid for more public work. "There remain any number of uncertainties around the shares, including the size of a future rights issue and the cut in dividends," so 'hold' says The Times's Tempus. ABPlease note: Digital Look provides a round-up of news, tips and information that is impacting share prices and the market. Digital Look cannot take any responsibility for information provided by third parties. This is for your general information only as not intended to be relied upon by users in making an investment decision or any other decision. Please obtain a copy of the relevant publication and carry out your own research before considering acting on any of this information.