Balfour Beatty plc (BBY) Turns The Corner, Swings To Profit

London-based construction company Balfour Beatty plc (LON:BBY) reported its first profitable year since 2013. Underlying profit from operations stood at £67 million, compared to a loss of £106 million a year ago. “The transformation of Balfour Beatty is well underway. We have returned the Group to profit and significantly exceeded our Build to Last Phase One targets”, said CEO Leo Quinn.
BBY Debt And Equity As Of 30 June 2016
BBY had kicked off Build to Last transformation plan in 2015 to improve cash generation and profitability after the company saw its market capitalisation cut-in half on multiple profit warnings in 2014 as it found itself outstretched in non-core areas amid inefficient business processes that pressured margins, while it faced the risk of defaulting on its debt.

Build to Last phase-two

Dividends were scrapped and targets were set for phase-one and phase-two implementations. BBY exceeded those targets by exiting non-core assets, shared back-office functions, de-layering of management, focusing on the UK and the US and improving customer satisfaction. Its cash inflow and cost reduction of £439 million and £123 million, respectively, were way higher than targets of £200 million and £100 million. BBY has now entered into the phase-two of its Build to Last plan. After realigning its business over the past two years, the company is targeting to achieve industry standard margins in the next two years. “Having simplified the Group, we are focused on our core markets in the UK and US, where governments are committed to large scale expenditure on infrastructure” added Mr Quinn. BBY expects to benefit from strong market outlook in key markets, while consistently improving its balance sheet through liquidating remaining non-core assets, and with more flexibility and at better prices now that it’s in a much better financial position. The company also announced a final dividend of 1.8p per share, making the total dividend of 2.7p for the full-year.

Anglo American plc (LON: AAL) shares jump as Volcan Investments acquires a significant stake

Shares of the London-headquartered miner were up 8.4% after Volcan Investments, a family trust owned by Anil Agarwal, an Indian mining veteran and the chairman of Vedanta Resources plc (LON:VED), revealed intentions of investing up to £2 billion in Anglo American. That’s a nearly 12% stake to be acquired through mandatory exchangeable bond issuances and open market share purchases. VED shares also rallied higher, gaining more than 8% this Thursday.
Anglo American Relative Valuation Ratios
Mr Agarwal’s earlier attempts to merge certain assets of both the companies to enhance margins were thwarted by Anglo American’s board of directors. This is a kind of indirect ownership that Volcan has acquired, but Mr Agarwal is better positioned this time to achieve his goals through influencing Anglo in the direction of combining assets or acquiring certain assets of his interest amid Anglo’s ongoing divestments. Investors’ reaction to the news indicates that they are finding consolidation an important step for the embattled mining industry to deliver sustained returns after recovering from more than a year a long down-cycle in the commodity markets.