Kier (KIE) & Balfour Beatty (BBY): Are these stocks good to hold?

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Kier (KIE) & Balfour Beatty (BBY): Are these stocks good to hold?

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 Kier (KIE) & Balfour Beatty (BBY): Are these stocks good to hold?
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Highlights 

  • The construction sector reported a decline in sub-contractor availability in September, according to a IHS Markit & CIPS survey.
  • The construction PMI index declined to 52.6 in September, down from 55.2 in August.
  • We review the investment prospect in two construction stocks – Kier Group and Balfour Beatty.

Growth in the construction industry reported a slowdown last month as material and labour shortages continue to hamper operations in the UK. According to a survey conducted by IHS Markit & CIPS, although the output growth eased for the third month in a row, the sector reported a decline in sub-contractor availability due to shortage of HGV drivers, bricklayers, groundworkers, plumbers and other skilled staff. Disruption in demand and supply resulted in the largest increase in sub-contractor costs since April 1997. The construction PMI index declined to 52.6 in September, down from 55.2 in August this year.

A decline was reported in housebuilding and civil engineering segments, where the PMI declined to 52.8 and 51, respectively. According to the survey, about 51% of the interviewed construction firms forecast rising output, and only 8% expected a decline. However, the degree of confidence was weaker in September compared to the previous month, amid rising supply chain issues.
Balfour Beatty & Kier: Market cap & one year return

(Data source: Refinitiv)

Here is a review of the investment potential in two construction stocks listed on the LSE.

Kier Group Plc (LON: KIE)

Kier Group is UK-based provider of building, civil engineering and support services. In September, it received a £66 million contract from Thames Water for project at the Mogden Sewage Treatment Works in Isleworth.

The shares of Kier Group are currently trading at GBX 114.40, down by 3.54% at 11:44 AM BST on 6 October 2021.

Kier Group recorded an adjusted revenue of £3,329 million for the year ended 30 June 2021, compared to £3,476 million in the previous year. Its adjusted profit before tax rose to £65.4 million in 2021 compared to £16.9 million in 2020.

The market cap of Kier Group currently stands at £529.16 million, and the shares of the company returned 120.00% to shareholders as of 6 October 2021.

Balfour Beatty Plc (LON: BBY)

Balfour Beatty is a leading provider of infrastructure and construction services in the UK. Recently, it was awarded an £85 million contract by SSEN Transmission for the second phase of overhead line works in the West of Scotland. It also received an £52 million cabling contract at the London Power Tunnels 2 project from National Grid.

The shares of Balfour Beatty are currently trading at GBX 267.40, down by 3.12% at 11:56 AM BST on 6 October 2021.

For the half-year ended 2 July 2021, Balfour Beatty’s underlying profit from operations was £60 million compared to a loss of £14 million in 2020. Its order book was recorded at £16.1 billion in FY 2021 compared to £16.4 billion in FY 2020.

Balfour Beatty announced an interim dividend of 3.0 pence, up by 43% since the pre-pandemic dividend of 2.1 pence per share in 2019.

The market cap of Balfour Beatty currently stands at £1,767.71 million, and the shares of the company returned 16.16% to shareholders as of 6 October 2021.

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