It's hard to disagree with chief executive Peter Rogers' bullish assessment of Babcock's (BAB) full-year numbers as a "top-class financial performance". Organic revenue and profit both grew 9 per cent, the dividend is up 13 per cent (adjusting for the recent rights issue), and the engineering outsourcer already has 60 per cent of forecast revenue for the new financial year and 30 per cent for 2015-16 in the bag. "Further strong progress" this year looks assured.
A busy first half is practically guaranteed. About £3bn of contracts are expected to be rubber-stamped over the next few months, swelling Babcock's already bulging £11.5bn order book. Among them is the £4.2bn contract to decommission and clean up the Magnox nuclear power plants and research sites. There's a 21-year £300m deal with the London Fire Brigade, £200m of track work with Network Rail, and a new five-year contract with the Ministry of Defence (MoD) for support at the Devonport and Clyde naval bases that will add about £2bn to the order book later this year. A big MoD procurement and distribution deal worth £5bn and vehicle repair contract worth about £250m a year are also up for grabs.
Of course, these contracts will drop out of the bid pipeline - currently at £17.5bn. But Babcock is tracking about £14bn of work, a chunk of which it will undoubtedly bid for when the contracts come up. Designing and building Britain's Trident nuclear submarines, refit programmes and dismantling decommissioned subs could be worth a fortune. Remember, Babcock typically wins about 45 per cent of the work by value that it bids for. And don't forget the £1.9bn order book and £5.9bn bid pipeline of Avincis, the helicopter services business bought by Babcock for over £900m.
Ignore the £1.1bn rights issue used to pay for Avincis and adjusted EPS jumped from 62.2p to 70.3p for the year to 31 March. Adjust for it and EPS was 62.1p. Investec Securities expects 66.5p this year.
BABCOCK INTERNATIONAL (BAB) | ||||
|---|---|---|---|---|
| ORD PRICE: | 1,178p | MARKET VALUE: | £5.9bn | |
| TOUCH: | 1,178-1,179p | 12-MONTH HIGH: | 1,301p | LOW: 946p |
| DIVIDEND YIELD: | 1.8% | PE RATIO: | na | |
| NET ASSET VALUE | 277p* | NET DEBT: | 52% | |
| Year to 31 Mar | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2010 | 1.9 | 129 | 46.3 | 17.6 |
| 2011 | 2.6 | 111 | 30.1 | 19.4 |
| 2012 | 2.9 | 173 | 42.9 | 22.7 |
| 2013 | 3.2 | 182 | 43.9 | 26.3 |
| 2014 | 3.5 | 219 | 50.1 | 21.4† |
| % change | +9 | +20 | +14 | +13 |
Ex-div: 2 Jul Payment: 12 Aug *Includes intangible assets of £1.9bn, or 521p a share †Unadjusted for the rights issue completed on 6 May | ||||
