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City Site - Majors ride out a week of bad press


SOME of the shine could easily have come off the major contractors during the past week or so. Carillion's suspension from tendering for new Network Rail projects, Interserve's £25 million write down following a mis-statement of its accounts and a hostile TV documentary about PFI could all have cast a shadow over the sector.

Likewise, the 42 per cent dip in first half pre-tax profits at Balfour Beatty, following a write-down linked to loss-making US contracts.

But although the problems at Interserve prompted an 18 per cent fall in its share price, the construction sector overall seems to have emerged largely unscathed.

Carillion's shares actually rose last week as the City seemed reassured that the rail suspension would have no material effect on earnings expectations this year or next.

And while PFI might face increasingly vocal critics, for now neither major political party seems interested in alternatives.

Meanwhile, Balfour's results were received positively as analysts shrugged off the US write-down and focused on the 15 per cent rise in pre-exceptional profits, an 11 per cent rise in the dividend and a record £8.8 billion order book. As a bellwether for the sector, the company's upbeat statement on trading prospects and its strong performance particularly in building - where profits more than doubled - and civil engineering, reinforced confidence in the sector. As analysts raised their profit forecasts for Balfour, some recent interest rate-related concerns have begun to fade.

With the UK economic outlook less certain, Balfour, in common with other majors, is encouraging investors with the headway it is making overseas. One factor behind the firm's burgeoning order book has been contract wins in the Hong Kong building and US and Dubai road markets.

While its recent acquisition of Birse will expand its business at home, it also recently bought Texas-based Charter, which will strengthen its position in the growing US education market.