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After losing nearly 25% of its value between 06 November and 12 November, Balfour Beatty (LSE:BBY) is inching its way back toward the 320.00 mark with a 6.00 pence gain to 253.1 approaching the 14:00 hour.
BBY share price dropped earlier this month, charting with a glide path like a father jumping into the Thames after his son telling him that he wants to start a construction company. The company painted a bleak forecast in its 3rd quarter report issued on 08 November. After winning the gold, so to speak, with the contract to build the Olympic Aquatic Center, the company was left with very little in the pipeline other than small, regional projects. It was not for a lack of trying, according to CEO at the time, Andrew McNaughton. It’s there has been nothing significant available for tender. The company has eliminate over 600 jobs and 5,000 suppliers in an attempt to trim £50 million out of its annual budget.
Things are looking somewhat better today as Balfour Beatty has landed a long-term infrastructure maintenance contract in Scotland. The contract begins on 01 April 2013 and continues for a period of five years with options for another five years. BBY values the contract at £25 million per year, or a total of £250 million of the lifetime of the contract with options exercised.
The contract has been placed with Scotland TranServ, which is a joint venture between Balfour and Mouchel, and covers the southwest region of Scotland reaching from points is Dumfries to points in Strathclyde. Balfour will be responsible for inspection and maintenance of nearly 700 kilometers of roadway and more than 1,900 associated structures. The contract includes snow removal, grass-cutting, and light and signal repairs.
There is only so much that a company like Balfour Beatty can do to weather the current economic storm. They can’t know on someone’s door and ask if they need new infrastructure or, say, an aquatic center. They can’t improve business by taking out ads on the telly. They pretty much have to wait for projects to become available for bids. And then, they have to put together a competitive bid that is still adequate to bring in the revenue the company needs to be profitable.
The traditional construction sector is in a malaise that, so far, has shown no indication or reason for recovery. The same situation applies to infrastructure construction and maintenance, except that there is a lot of work to do in that realm, but not enough money to do it. Governments are strapped for cash and infrastructure is costly enough to maintain, let alone replace or construct.
The response to today’s announcement should be encouraging, in that it seems to indicate a core of confidence within the faithful investors. It surely has made it easier for Balfour Beatty execs and employees to breathe a little easier.
