December 21, 2017 / 7:57 AM / a year ago

UPDATE 2-Britain's Balfour sees profits up on sale of stake in M25 operator

* Balfour cuts stake in London motorway operator

* Deal to provide windfall boost to profit

* Has conditional agreement to sell further 12.5 percent (Adds shares, background)

Dec 21 (Reuters) - Balfour Beatty has agreed to sell a 12.5 percent stake in London M25 motorway operator Connect Plus for 103 million pounds ($137.6 million), boosting its profit forecast and sending its shares to a seven-month high.

The sale of the stake to British infrastructure-focused fund management company Dalmore Capital Limited was subject to Highways England consent and was expected to be completed before the end of the year, Balfour said on Thursday.

Shares in the company rose as much as 3.3 percent, making them one of the top performers on FTSE 250 index.

Balfour’s positive outlook contrasts with its closest peer Carillion — which is fighting for its survival after costly contract delays and a downturn in new business.

London-headquartered Balfour said the board had nudged up its expectations for 2017 pretax profit and year-end net cash as a result of windfall from the disposal, upgrading forecasts in a Dec. 12 trading update.

Balfour said it expected the profit from the disposal to be 53 million pounds — 37 million pounds higher than the market consensus figure for that part of the business.

The company also said it expected year-end net cash to be 103 million pounds higher than the previous forecast. It had been forecasting net cash at around 40 million pounds.

Balfour retains a 27.5 percent stake in Connect Plus.

It has however made a series of conditional arrangements with funds managed by Equitix Investment Management Limited and Dalmore under which up to an additional 12.5 percent may be sold at an equivalent price by May 13, 2018.

“Together with management actions to date this (disposal) puts Balfour Beatty in prime position in the UK and U.S. to exploit strong market outlooks,” Numis said in a client note keeping a “buy” rating.

Balfour has spent two years overhauling operations after losses at its British construction division led to multiple profit warnings. It scrapped its 2015 dividend, cancelled a share buyback and reorganised pension payments.

The company returned to annual profit in 2016 on the back of strong growth in its U.S. construction division and an improved performance from its British business. ($1 = 0.7486 pounds) (Reporting by Rahul B in Bengaluru; Editing by Edmund Blair and Keith Weir)

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