Balfour Beatty to make £103m from sale of M25 stake, lifts profit expectations

FTSE 250 infrastructure group Balfour Beatty rallied on Thursday as it announced the sale of a 12.5% stake in Connect Plus, the company which operates the M25 orbital motorway, for £103m, and lifted its 2017 profit expectations.

The sale to fund management company Dalmore Capital Limited has received the necessary consent from Highways England and is expected to complete before year end, with proceeds used to pay down borrowings next year.

Balfour said that as a result of the sale - the price of which is above the directors' valuation as at 30 June- its expectations for both pre-tax profit and year-end net cash in 2017 are higher than those included in the trading update earlier this month. The expected profit on disposal on the transaction at £53m is £37m higher than the market consensus of £16m for Infrastructure Investments profit on disposal in 2017. Meanwhile, the year-end net cash, which was forecast to be in line with prior year, is now expected to be around £103m higher.

Balfour will continue to hold a 27.5% stake in Connect Plus.

Chief executive Leo Quinn said: "This transaction emphasises the ongoing attractiveness of our infrastructure assets and is in line with our declared intent to maximise value for shareholders."

Numis said the sale is a positive step on two fronts. "Firstly, realising a figure above directors' valuation (and 25% ahead of what Skanska achieved) demonstrates further the excellent track record and group strategy for selling mature assets and that inherent value remains - notably as post the sale, DV will still be circa £1.1bn/60% of market capitalisation.

"Second, the likely use of sales proceeds to pay down gross debt in our view provides the group with the best balance sheet in the sector. Together with management actions to date this puts Balfour Beatty in prime position in the UK and US to exploit strong market outlooks. We retain target price and view that Balfour Beatty offers the best recovery profile coupled with balance sheet in the sector, making it a top pick going into 2018."

At 0835 GMT, the shares were up 2.2% to 287.90p.