Building on strength: Balfour breaks out again

Adding to strength is a smart strategy — as long as you’re not overpaying and the financial quality stacks up. We believe that’s exactly the case with Balfour Beatty (BBY).

The business has continued to deliver operationally, and the recent bounceback in the share price — culminating in a breakout to new highs after this month’s trading update — looks well-earned. This isn’t just a relief rally. It’s a continuation of a longer-term trend, now reinforced by solid earnings momentum, a strong balance sheet, and one of the better quality profiles in the sector.

May trading update shows momentum in key markets

May’s AGM trading update confirmed that Balfour Beatty has kept its post-COVID recovery well on track. The company reported that trading for the year to date has been in line with expectations, and that the Board continues to expect higher profits from its earnings-based businesses in 2025.

Perhaps most encouraging was the clear evidence of ongoing momentum in Balfour Beatty’s key markets. The company is benefitting from infrastructure tailwinds in both the UK and US, and its selective bidding approach — long a hallmark of its capital discipline — is helping to keep risk low while maintaining quality in the forward order book.

Headline contract wins included £450 million of UK rail work (including projects under CP7 and with Network Rail), a $385 million construction deal for the Grand Hyatt in Miami, and a $889 million roadworks contract in Texas. Together, these awards underscore the scale and global breadth of the group’s pipeline.

Financial quality: Consistent, conservative, and cash-generative

Cash remains one of Balfour Beatty’s quiet strengths. For the first quarter of 2025, the group reported an average monthly closing net cash balance of £1,060 million, up sharply from the FY 2024 average of £766 million. The Board now expects 2025 average net cash to land between £900–£1,000 million — strong liquidity in a high-rate environment.

This surplus cash gives Balfour Beatty room to manoeuvre — and return capital. A £125 million share buyback is already underway, with roughly £46 million completed to date. It’s another signal that management is confident in the underlying trajectory and is happy to return excess capital to shareholders without compromising future investment.

While not the flashiest business in the market, Balfour Beatty scores highly on quality metrics — and that’s exactly what long-term investors should want from an infrastructure group. The company delivers a 15.4% return on equity, a solid 7.1% return on capital, and a positive operating margin despite the cyclical and often tight-margin nature of its sector.

What’s more, its valuation metrics underline how attractively priced this quality is. The EV/EBITDA multiple sits at just 8.72, while the price to free cash flow ratio is 10.3 — a level that reflects strong ongoing cash generation without demanding growth assumptions.

Valuation: Low expectations, solid delivery

Despite strong operating execution, the market still isn’t pricing Balfour Beatty for perfection — far from it.

The shares trade on a forward P/E of just 10.8, well below the wider market average and offering a forward dividend yield of 2.85%, covered by robust free cash flow. Earnings are forecast to grow 6.7% this year, giving a forward PEG ratio of 1.7 — a fair reflection of steady rather than explosive growth, but one that feels very reasonable in this interest rate environment.

Price to sales stands at just 0.30, and price to book at 2.17. Both of these reflect the market’s tendency to undervalue construction and engineering businesses, even when they’re profitable, cash-generative, and operating with discipline. For investors willing to look through the cyclical noise, there’s clear value on offer.

A breakout that matters

Balfour Beatty’s technical setup has been textbook. Despite the broad market volatility in Q1 2025, the stock never lost its bigger-picture structure — the 50-day moving average remained above the 200-day throughout the pullback, confirming the strength of the longer-term uptrend.

For technically-minded investors, this breakout is significant. It confirms a continuation of the uptrend, opens up new levels of institutional interest, and signals confidence in the group’s cash flows and order book.

What Balfour Beatty offers is a clear, durable investment case: steady earnings, strong cash generation, prudent capital management, and a forward pipeline of contracted work in two of the world’s largest infrastructure markets.

With the business executing well, the shares breaking out to new highs, and the valuation still undemanding, we’re happy to lean into strength. In a market that’s punished inconsistency, Balfour Beatty has stayed the course. That alone is worth backing.