US tax cuts boost Balfour EPS by 4%, says Numis

The boost from US tax cuts should provide a 4% earnings per share boost at infrastructure construction specialist Balfour Beatty, broker Numis said on Thursday.

In a note to clients, Numis recommended the shares as a 'buy', moving from 'add' with a target price of 350p.

"Aside from these direct benefits, the indirect benefits of increased business confidence and likely investment in the
US resulting from these tax moves are good news given the scale of Balfour's US operations nationwide," Numis said.

"US exposure (are) a major part of the group's operational base plus a UK business where operational improvements will take place alongside the strongest balance sheet in the sector are important investment features in the post-Carillion world and back up our positive investment case."

Balfour said US President Donald Trump's tax cuts will result in a one off £20m non-cash credit from the revaluation of US deferred tax liabilities.

In a statement, the company said the reduction in corporate income tax rates to 21% from 35% will lead to a reduction in the effective tax rate on US earnings from to 26% from 40% in 2018 and beyond.

Balfour added that the valuation of its investments portfolio will increase by about £95m.

Based on Numis estimates, this equated to a tax saving of about £6m, or 1p share for 2018.

"Aside from the direct benefits of these tax moves, we believe it worth highlighting the likely positive impact as US companies increase capex spend, and Balfour Beatty will be a major beneficiary as a leading general contractor in the US," Numis said.

"With the US being half of group profits this is a key attraction of the group in our view."