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Babcock grows steadily

The group's order book is down following the Magnox announcement earlier this year
May 24, 2017

Engineering support services company Babcock (BAB) previously warned that its order book would lose at least £800m following its early exit from the Magnox nuclear decommissioning contract earlier this year. That work could re-enter the pipeline at some point, but for now the order book sits at £19bn, compared with £20bn at the end of March 2016. The tender pipeline for future work is level on last year at £10.5bn, as is the group's win rate of over 40 per cent of bids for new contracts and over 90 per cent for renewals of old contracts. Management was especially keen to mention both a €500m (£432m) contract with the French Ministry of Defence for provision of training platforms, which it won during the year, and also its part in a £1bn US nuclear submarine programme.

IC TIP: Buy at 968p

The group delivered strong growth during the year, with underlying operating profit up 5.3 per cent in constant-currency terms. In April 2017 it realigned the business around four sectors; marine and technology, defence and security, support services and international. All four grew revenue during the year, but international - the smallest - saw a 10 per cent drop in pre-tax profit to £50.7m for the year following squeezed margins and higher amortisation charges.

Analysts at Peel Hunt are forecasting adjusted pre-tax profit of £525m for the year to 31 March 2018, giving EPS of 84.3p (from £495m and 80p in 2017).

BABCOCK (BAB)

ORD PRICE:968pMARKET VALUE:£4.89bn
TOUCH:967.5-969p12-MONTH HIGH:1,112pLOW: 780p
DIVIDEND YIELD:2.9%PE RATIO:16
NET ASSET VALUE:528p*NET DEBT:44%

Year to 31 MarTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20133.2418243.926.3
20143.55219.050.121.4
20154.0031352.923.6
20164.1633057.025.8
20174.5436261.828.2
% change+9+10+8+9

Ex-div: 29 Jun

Payment: 11 Aug

*Includes intangible assets of £3.22bn, or 636p a share