Balfour Beatty jumps 9% as it hires QinetiQ boss as new chief executive

Struggling infrastructure group Balfour Beatty has poached the boss of QinetiQ to lead its turnaround, sending the two companies shares in opposite directions.

Leo Quinn will join Balfour Beatty in January on a basic salary of £800,000 and will join the company’s bonus and long term incentive plans, as well as receiving compensation for losing out on any QinetiQ awards.

Balfour has issued a string of profit warnings in the past year and has been without a chief executive since May when Andrew McNaughton stepped down. It rejected a takeover from rival Carillion in August, shortly before another disappointing update, and is in the process of a review of the business. One plan is to sell its Parsons Brinkerhoff division and return up to £200m to shareholders, which seems to have divided analysts.

But Quinn’s appointment seems to have been well received. Balfour’s shares have jumped 12.7p to 161.4p while QinetiQ is down 21p to 197.8p. The defence technology group said it had started a search for a replacement for Quinn but in the meantime chief financial officer David Mellors would become acting chief executive.

On Quinn’s appointment, Liberum said:

This is a truly exceptional hire.

We were sceptical whether Balfours could hire someone that met our three key criteria; UK Plc experience (QinetiQ, De La Rue), turn-around experience (also Honeywell Building Control) and experience of a complex contract management business with large, often public sector clients (also he actually started his career at Balfour in 1979-1981). QinetiQ has modestly underperformed (4%) the market since he joined, and there were three profit warnings soon after he joined.

However, Leo Quinn is widely recognised as a top-draw chief executive, who is particularly strong at working capital management, which is key for Balfour. The fact that he is willing to join Balfour at this time means that he can see value in the business, where many investors appear to have given up on it. He has a strong following of investors, who will now look to back the man.

One potential negative is that Leo Quinn will undoubtedly have his own strong view on corporate strategy, and may question the buy-back program in 2015.

This is potentially one of the great corporate turn-arounds of UK corporate history and while there is a risk / probability of more bad news on earnings, there is deep value and huge recovery potential.

Meanwhile Jefferies said:

[Quinn] has a good track record as a turnaround specialist. It would, however, be a shame if he has let the biggest strategic decision the group will make in the next decade be made before he joins. Surely the incoming Mr Quinn should assess the contribution of Parsons Brinkerhoff to the group rather than the exiting chairman.

Balfour Beatty jumps 9% as it hires QinetiQ boss as new chief executive