Balfour Beatty shares outperform construction rivals CRH and Kier

Despite Balfour Beatty, Kier Group and CRH all reporting positive earnings results in the past month in the face of rising costs, the share prices of all three UK construction stocks are in the red so far in 2022. Is the industry starting to show signs of a slowdown?

The UK construction industry suffered in August, with higher costs impacting demand for housing and commercial building, which has had a knock-on effect for the share prices of CRH [CRH.L], Balfour Beatty [BBY.L] and Kier Group [KIE.L].

During August, the S&P Global/Cips UK Construction Purchasing Managers’ Index dipped below the 50 threshold, which indicates the industry is slowing down.

Strong demand for housing helped boost the construction industry during the pandemic, but soaring inflation has had a negative impact, bringing potentially tougher times for commercial building, residential and civil engineering as projects get put on hold and costs continue to rise.

John Glen, chief economist at the Chartered Institute of Procurement and Supply, behind the S&P survey, said UK construction was poised for contraction as “rising prices for raw materials worldwide filtered into UK supply chains”, reported the Financial Times.

CRH reported strong H1 figures

Irish building materials giant CRH has seen its share price slide by 18.5% year-to-date, closing at 3,057p on 14 September. However, it has recovered from a slump in June when it fell as low as 2,735.34p.

On 25 August, the company delivered positive half-year earnings, and announced it would be raising its dividend to $0.24. For the six months to 30 June, its revenue was up 14% year-over year to $15bn, while its pre-tax profits rose 33.3% to $1.2bn. For the full year, it said it anticipated EBITDA of $5.5bn, up 10% year-over-year.

Albert Manifold, CEO of CRH, said it had delivered a “strong performance”, including further growth in sales, “despite a challenging and volatile cost environment”.

At the Financial Times, nine analysts are offering a forecast of either ‘buy’ or ‘outperform’ on CRH stock, with a median price target of 4,142.6p, which would indicate a 35.5% upside on its 14 September closing price.

Balfour Beatty shares outperform the industry

The UK infrastructure and construction group has been surprising winner in 2022, as many of its peers in the industry struggle. The Balfour Beatty share price was up 32.4% year-to-date as of 14 September, closing at 338.8p.

On 17 August, Balfour also reported bumper half-year results, including a 42% increase in underlying profit from operations to £85m, compared with £60m in 2021, as well as a 10% increase in its order book to £17.7bn. 

It also reported a 68% increase in earnings to reach 12.9p per share, compared with 7.7p in 2021. The company upgraded its full-year target for its support services business to the top end of the 6–8% industry standard margin range.

Balfour said strong H1 results demonstrated “resilience in the face of macro uncertainties”, and that higher costs and inflation would be offset by its operational strength and order book. Its share price closed 10.5% higher than the previous day after the earnings announcement.

It’s thought Balfour has benefitted from the UK government’s plans to invest £650bn in the improvement of roads, railways, power networks and other infrastructure through to 2030. It’s a contractor on projects including the flagship northern HS2 rail link, as well as Hinkley Point nuclear power station.

At the Financial Times, of five analysts offering ratings on Balfour stock, four say to ‘buy’, while the remaining one gave an ‘outperform’ rating.

Kier Group posts robust full-year results

Construction firm Kier Group’s share price has slumped 31.5% year-to-date as of 14 September, a far poorer performance than both Balfour and CRH. However, the company’s full-year earnings call on 15 September may provide a much-needed boost.

While revenue fell 2% year-over-year to £3.25bn from £3.3bn a year earlier, adjusted operating profit grew 20% to £120.5m and its operating margin grew from 3% to 3.7%, above its medium-term target of 3.5%. The company’s order book also grew by 27% to £9.8bn, which should provide some protection against market headwinds.

“Over the last two years Kier has undergone a transformation, rationalisation and recapitalisation and the Group is delivering against its medium-term value creation plan,” Kier Group CEO Andrew Davies said.

At MarketScreener, four analysts have a consensus to ‘buy’ Kier Group shares, with the median price target of 175p representing a potential 132.4% hike from its last close of 75.3p on 14 September.