The outsourcing industry has been awash with profit warnings of late, but interim results from Babcock (BAB) have broken the trend. The group reported numbers ahead of expectations, with underlying revenue and pre-tax profits up 6 per cent and 7 per cent respectively.
And yet, investors sent the share price down 4.6 per cent on results day, their nerves perhaps rattled by slower-than-expected organic growth. On a like-for-like basis, revenue rose just 4 per cent due to South Africa's economic slowdown and the impact of the grounding of an Airbus helicopter fleet widely used in the offshore oil and gas industry following a crash in June.
But the outlook is good. A £2bn intake of new contracts kept the order book steady at £20bn, while £3bn-worth of projects were added to the bid pipeline. Chief executive Archie Bethel is particularly bullish on the prospects for the defence and security sector, where underlying revenue in the reported period rose 16 per cent to £469m. Mr Bethel anticipates that the division could be set to benefit as Nato member states in Europe come under pressure from the US to boost defence spending in the wake of Donald Trump's election as president.
Broker Peel Hunt expects adjusted pre-tax profits of £496m for the year to March 2016, giving adjusted EPS of 79.9p (up from £460m and 74p in FY2016).
BABCOCK INTERNATIONAL (BAB) | ||||
|---|---|---|---|---|
| ORD PRICE: | 975p | MARKET VALUE: | £4.93bn | |
| TOUCH: | 975-976p | 12-MONTH HIGH / LOW: | 1,112p | 780p |
| DIVIDEND YIELD: | 2.7% | PE RATIO: | 16 | |
| NET ASSET VALUE: | 477p* | NET DEBT: | 53% | |
| Half-year to 30 Sep | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2015 | 2.04 | 146 | 24.7 | 6.05 |
| 2016 | 2.17 | 164 | 28.3 | 6.50 |
| % change | +7 | +12 | +15 | +7 |
Ex-div: 8 Dec Payment: 16 Jan *Includes intangible assets of £3.26bn, or 645p a share | ||||
