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Babcock International reported forecast-beating full-year profits, thanks to a combination of strong organic growth and recent acquisitions.
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Buying Devonport Management and International Nuclear Solutions made Babcock International the Royal Navy's leading provider of support services for its surface and submarine fleet. The two purchases also added £408m to turnover and £38.8m to operating profits. And since the year-end, the group's position has been further strengthened by the acquisition of project management and engineering solutions provider Strachan & Henshaw, for £65m. This will boost Babcock's position in the nuclear market and should help to extend its submarine support services into overseas markets.
Stripping out the acquisitions, operating profits grew 20 per cent and new contract wins kept the forward order book stable at £3bn. More work would have been secured but for delays in agreeing Ministry of Defence budgets. However, the situation is expected to improve over the next six months. Babcock Rail provided the one disappointment and, after a weak first half, the group undertook a significant restructuring which provided immediate benefits and a return to profitability in the second half.
Numis Securities expects pre-tax profit of £121.3m for 2009 and EPS of 41.4p.
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| BABCOCK INTERNATIONAL(BAB) | ||||
|---|---|---|---|---|
| ORD PRICE: | 589p | MARKET VALUE: | £1.35bn | |
| TOUCH: | 588-590p | 12-MONTH HIGH: | 627p | LOW: 470p |
| DIVIDEND YIELD: | 2.0% | PE RATIO: | 20 | |
| NET ASSET VALUE: | 156p* | NET DEBT: | 89% | |
| Year to 31 Mar | Turnover (bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2004 | 0.45 | 19.7 | 11.3 | 3.35 |
| 2005 | 0.73 | 29.5 | 11.2 | 4.00 |
| 2006 | 0.84 | 41.3 | 16.1 | 6.00 |
| 2007 | 0.99 | 57.0 | 21.5 | 8.05 |
| 2008 | 1.56 | 84.6 | 30.0 | 11.5 |
| % change | +58 | +48 | +40 | +43 |
Ex-div: 9 Jul Payment: 8 Aug *Includes intangible assets of £543m, or 237p a share |
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Trading on 14 times forecast earnings, Babcock shares are not cheap. But with strong organic growth and the full benefit of recent acquisitions still to show through, the shares offer long-term good value.
Last IC View: Good value, 608p, 14 Nov 2007.
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-IC-1.5.4a-prod - 31/10/2008 13:11:34 - carlos.princz
