Of all the shares in my portfolio, Balfour Beatty (BBY) has been most in and out of profit over the past few years. Recently it has been showing a loss on my purchase price, though one that has been mitigated by dividends received. At last the shares seemed to have bottomed out and I feel more hopeful.
Balfour Bounce
Results for the half year to 28 June showed underlying profits up 9%. Net cash averaged £290 million, significantly more than the £161 million recorded in the previous first half. New guidance suggests that the current level will be maintained. That should allay some fears after rivals have run into financial difficulties
Two factors underpin Balfour’s performance and give hope for further recovery: one is that the group is maintaining its discipline in bidding for work, avoiding the past mistake of chasing unprofitable contracts. The order book is nonetheless still up 5% to £13.2 billion and the legacy issues are well into the past. Secondly, less than half the order book is for work in the UK. It was the United States that provide the main boost, in construction and support services.
Chief executive Leo Quinn says Balfour is on track to meet expectations for the full year. Given the first half performance, that could well prove an understatement.
The interim dividend is raised from 1.6p to 2.1p. The total will be well covered and the strong balance sheet suggests that further increases in the payout are likely.
Twice in the past 12 months the shares have looked like pushing above 300p but on both occasions it proved a false dawn. Instead, Balfour slumped below 200p earlier this month. The results proved the doubters wrong and the shares shot up nearly 10% on a day when the FTSE100 index slumped more than 100 points. I believe the only way is up.
Lumpy portfolio
I’m obliged to a Twitter follower called Franz for drawing my attention to a distortion in my portfolio: I am too heavily committed to UK housebuilding and finance, and am thus vulnerable to a downturn in the housing market. With worries over global trading, a slowdown in Germany and the possible reaction to a no-deal Brexit weighing down on stockmarkets, particularly in London, perhaps I should be concerned.
As a long-term investor, I don’t believe in following stockmarket fads and fancies slavishly. I don’t keep track of how my portfolio has moved in the year so far and I don’t worry about whether some months tend to be better for share prices than others.
However, I do believe in the merits of building a balanced portfolio when starting out, agreeing with the popular notion of having about 10 shares in different sectors and putting roughly the same amount of money into each. During that process, and afterwards, each investment is a separate decision based on the merits of the relevant company. I sometimes add to existing holdings and sometimes add new companies: it all depends on what I feel is a good opportunity.
I try, vaguely but not slavishly, not to become too heavily invested in any one company or sector but don’t stick to hard and fast rules. The difficulty is that a modest holding can grow out of proportion if you hit a winner.
For example, 12% of my portfolio is in housebuilders but that is because Barratt Developments (BDEV) is up 444% on my buy price and Taylor Wimpey (TW) 125%. On the other hand, putting 10% into banking was a conscious decision. In fact, I originally invested a larger proportion. Both my bank holdings, Lloyds (LLOY) and HSBC (HSBA), have shrunk, but I believe both will come good over time.
So far this year I have also kept more cash than usual waiting for the right buying opportunity. I think with all the current uncertainties it is right to be more sure before piling into a new investment.
