Tuesday tips round-up: Balfour Beatty and Sirius Minerals

4th Dec 2012 06:47

Tempus in The Times says that Balfour Beatty was keen to emphasise to the City yesterday that three fifths of its order book now comes from growing infrastructure markets in transport, power, water and mining. But at the last count, a similar proportion of historic revenue came from construction services and, in the post-Olympics trading environment, the company has had to rely on lower-margin, smaller contracts often outside the booming market in the capital - the regions account for half the construction order book, up from a third a year ago. This was the main reason, as well as a reversal in the American construction market ahead of the election, behind last month's shock profits warning.There are indications that Balfour Beaty is ramping up its programme of selling mature private public partnership assets. This is good news, because the proceeds can be recycled elsewhere. Over the next three years it now expects to sell assets worth £200m, generating gains of £40m.Alternatively, the bears' case is that Balfour Beatty is shoring up its balance sheet, which is leaking cash because of outflow from its UK construction activities. One analyst is forecasting an average debt level of £150m through next year.After their sharp fall last month, the shares sell on a modest seven times this year's earnings and yield 5.7%. But they actually fell after yesterday's presentation, off 3p to 255.25p, which suggests that the market may need more convincing.Tempus writes that Sirius Minerals confirmed yesterday that its ambitious potash mine there would cost as much as $1bn less than had been thought, at $1.7bn. Potash will be shipped through a pipeline to a plant on Teesside, where it will be filtered and turned into granules for shipping.Sirius expects to start production in late 2016 at about five million tonnes a year, with the potential to go to 12m. The company, an AIM stock with a market capitalisation just short of £300m, needs to fund the project. Most will come from the banks, but a strategic investor is being sought. A producer in New Mexico, IC Potash, has just struck a deal with one of the big fertiliser producers; a private equity backer is also possible.Potash has been costing about $230 a tonne on the world market. Because of the nature of the ore produced, Sirius will have to offer a discount, down to as much as $150 a tonne. Cost of production is estimated at $37 a tonne; projections, therefore, suggest that the company should be throwing off $500m or more of cash in the first full year of production.The two remaining imponderables that could block the project are the planning process and that financing deal. Though they have added 67% since July, Sirius shares at 21.75p are still a penny share. Undeniably speculative, but worth a punt.Please 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.