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The share price of Balfour Beatty (LSE:BBY) continued on the upswing today following the announcement of its being awarded a $124 million contract in the US state of North Carolina. The BBY share price opened at 268.7 and rose to 276.50 by 2:00 this afternoon.
The contract was awarded on behalf of the North Carolina Department of Transportation. The contract is important for Balfour Beatty because it expands their footprint in the US. It is important for the states of North and South Carolina because of the impact it will have on a region that relies heavily on tourism, but which is sorely lacking in highway infrastructure. Traffic heading into and out of the southeastern coast of North Carolina and the Grand Strand beaches of South Carolina is typically bumper-to-bumper for 60 miles or more from Thursdays through Sundays during the summer months, literally turning an hour drive into a four-hour drive. I know. I live in Myrtle Beach, less than an hour from Wilmington, where the project will be constructed. We leave with a seemingly endless sea from the beaches eastward, and a seemingly endless sea of traffic trying to access the beaches during the summer along roads that are not designed to carry the burden of the traffic which now carry an average of over 39,000 vehicles per day in the construction area. That number is expected to more than double by 2035.
Though not what one might call a “massive” project, it is, nonetheless, a high-profile one because it will remove one of, if not the biggest, bottlenecks that causes that traffic to backup so far. The work will cover only a mile and a half of four-lane roadway, but that mile and a half will include ten bridges to be constructed throughout an area of environmentally sensitive wetlands around the Cape Fear River. The granting of the contract signifies a significant amount of confidence demonstrated by the state in the ability of Balfour Beatty to not only build the roadway and bridges, but to preserve the particular ecological balance and beauty of the area.
Balfour Beatty’s performance is certain to enhance its leadership in the US which, hopefully, will lead to a growing number of contracts. This is additionally significant because the entire US roadway system, bridges in particular, is both deteriorating and not expanding rapidaly enough to keep up with the burden of traffic. The American Society of Civil Engineers (ASCE) gave American bridges an overall C+ recently, whilst giving roads a grade of D. In order to bring those roads and bridges up to engineering standards and, at the same time, add capacity that would reduce the estimated $121 billion per year in fuel wasted due to congestion such as in coastal North and South Carolina, the ASCE estimates that the local, state, and federal governments will need to spend $3.6 trillion between now and 2020.
I’ve said all of that to say this: $77 million is but a small slice of a $3.6 trillion pie. Balfour Beatty has the opportunity to carve out a much bigger slice of that pie, having secured this North Carolina contract. The US infrastructure needs may be the single biggest and best opportunity for the growth plans of BBY (if the US can come up with the money).
CEO Andrew McNaughton said, “The Wilmington Bypass represents further evidence of the improving outlook for our US business. This project win perfectly fits our skill set in the US where we have broad experience with these types of jobs and an outstanding record working on projects that require exceptional environmental stewardship and sustainable practices.”
