Just when the Boris Johnson-as-Winston Churchill shtick was beginning to wear thin, the prime minister has come over all Franklin Delano Roosevelt (Robert Lea writes).
It does not matter that spending on construction programmes, called a “New Deal”, is GCSE-level economic policy. Nor that such state intervention is horrifying old-style Conservative free marketeers. Nor whether the “building, building, building” figure is £5 billion or £500 billion (£5 billion, by the by, is 5 per cent of an HS2 rail line).
It is the fact that Britain is set on a course of major infrastructure investment, with the country cleared to become a giant construction site.
Balfour Beatty has been a leading construction company for decades. And while it has had diversions over the past century it has been an investor and builder of infrastructure since Mr Balfour met Mr Beatty before the First World War.
The excitement around Britain’s New Deal, however, barely moved the needle on its share price.
One way of looking at that is that the price at last night’s close of 260¾p is on a 33 per cent upward curve over the past three months. Another way to look at that, though, is that the shares remain 10 per cent off their pre-pandemic high.
This suggests that, despite the assumption that Balfour Beatty will be front and centre of any coming infrastructure boom, investors in the industry know better. They know that a construction company can have an order book the size of a small country’s GDP, yet struggle to make money.
Profit margins are notoriously thin; Balfour Beatty’s pre-tax profits at £200 million are less than 2.5 per cent of its £8.4 billion revenues, and one blowout on a big contract can erase earnings for years at a time.
But if that is the Room 101 investment case for the industry, the words of Leo Quinn, the chief executive who has put Balfour Beatty back on track these past five years, are worth hearing, too. Any prime minister touting a Keynesian building boom is a friend of the construction industry but Mr Quinn cautions that such commitments “must prioritise sustainable, digital and innovative solutions”.
In other words, this isn’t the 1930s. Just digging holes to create “jobs, jobs, jobs” in the PM’s words, is not the answer. There needs to be investment in zero-emission construction techniques and in a skilled workforce, bottomed out by a generation or more of lack of investment and dependence on overseas labour and expertise. In short, if the UK is to do this right, it is about investing in, not just creating, employment.
In the UK it is easier to name a big project that Balfour Beatty is not involved in. But Britain is not even half the story, as much of its business is done in the US and it has a strong position too in Hong Kong, even if both those jurisdictions have their own sets of economic, political and operational issues.
Not long before Mr Quinn took over at Balfour Beatty in 2015, the company had been in such a state that it was being bid for by Carillion — and look what happened to them.
Mr Quinn, originally a Balfour Beatty graduate civil engineer in the 1970s, gained a reputation as a fearsome turnaround expert at De La Rue and Qinetiq. Few would argue that he hasn’t done an outstanding job but, five years in and at 63, he won’t be around for ever.
That Balfour Beatty shares are not trading much higher than when he started is no commentary on him but an investor prognosis on the construction game. If you hold Balfour Beatty shares, then you should be happy to do so but there can be little expectation there will be capital growth on current levels.
Advice Hold
Why Well placed for any construction boom but that is no guarantee of sustained financial success
Syncona
The second wave of biotech businesses being developed by Syncona, the closed-ended investment healthcare company, continues to develop nicely (Alex Ralph writes).
Freeline, which is developing gene therapies for chronic diseases, raised $80 million from institutional investors yesterday, expanding an earlier series C financing, and is considering an initial public offering in the US this year.
Syncona invested $40 million in December and remains the largest shareholder, with a 60 per cent stake.
The series C was backed by investors including Novo Holding, the Danish life sciences investors, and Wellington, the US investor, and increases the value of Syncona’s holding to £181.5 million.
Syncona is a FTSE 250 company created in 2012 through £100 million of seed funding from the Wellcome Trust, one of the biggest charitable foundations. Its aim is to generate long-term patient capital to turn the UK’s life science research base into promising healthcare companies.
It has nine companies. Last year it sold Blue Earth Diagnostics, which uses molecular imaging to pinpoint prostate cancer, to Bracco Imaging for £390.2 million and Nightstar Therapeutics, a gene therapy company, to Biogen for £663 million.
This helped increase Syncona’s capital pool to £767 million at the end of its full-year in March, from £399.7 million a year earlier, to reinvest in its next wave.
Analysts at Numis said this month that Freeline and Achilles Therapeutics, a biopharmaceutical company developing personalised cancer immunotherapies which raised $100 million in a series B financing last year, were “shaping up to be two of the most exciting private life science companies in the UK”.
Syncona’s other listed company is Autolus, which harnesses a patient’s immune system to fight cancer and is listed on the Nasdaq index. The decline in Autolus’s share price dragged down Syncona’s net asset value to £1.25 billion at the end of March, or 185½p per share, down 13.3 per cent from £1.46 billion a year earlier. However, shares in Autolus have rebounded, as has Syncona, which is up 12.5 per cent this year.
Advice Buy
Why Second generation of well-backed biotech assets emerging
