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Babcock directors top up as investors jump ship

The defence engineering group is being squeezed by the pandemic and is also undertaking a review of its accounts
Babcock directors top up as investors jump ship
  • Three directors have purchased nearly £180,000-worth of shares
  • This follows Babcock announcing a review of its contract profitability and balance sheet

Defence contractor Babcock (BAB) saw its shares tumble earlier this month after revealing that it had initiated a “detailed review” of its balance sheet and contract profitability. Amid warnings of potential “negative impacts” on its current and future financial years, investors were spooked by the prospect of writedowns to come and the shares sank by more than a fifth.

The group didn’t say what prompted the audit, but it follows the refreshed management team announcing a strategic review in November. Cobham alums David Lockwood and David Mellors were drafted in as chief executive and chief financial officer, respectively, last year to try to restore Babcock’s fortunes. Mr Lockwood has already identified problems with the business’s “federated” model and pointed to a “cultural issue” with its approach to cash.

Babcock’s problems don’t end there. The group’s underlying operating profit plunged by more than a third year on year in the nine months to 31 December, to £202m, as it continues to be squeezed by government insourcing of civil nuclear contracts and existing weakness in civil aviation has been exacerbated by Covid-19. Looking ahead, while the March quarter is typically Babcock’s strongest, it is unlikely to provide much relief this year – the group says that the impact of the pandemic has “worsened in most of our markets”.

As they try to restore investor confidence, Messrs Lockwood and Mellors, alongside chairwoman Ruth Cairnie, have purchased just under £180,000-worth of shares. Babcock’s shares are currently sitting at 217p – above where the trio topped up their holdings – but they have been on a long-term downward spiral and prospects for a recovery are dwindling. Analysts have downgraded their forecasts yet again and as the Covid pressure mounts, broker Liberum believes that a dilutive fundraising has now become more likely. Sell.

Last IC View: Sell, 235p, 01 Oct 2020

Buys    
CompanyDirector/PDMRDatePrice (p)Aggregate value (£)
Babcock InternationalRuth Cairnie (ch)20 Jan 2119859,490
Babcock InternationalDavid Lockwood (ce)20 Jan 2119959,580
Babcock InternationalDavid Mellors (cfo)20 Jan 2119959,790
Breedon groupJames Brotherton (cfo)22 Jan 2186.564,875
HomeServeRon McMillan20 Jan 211,09029,975
IG Group HoldingsJune Felix22 Jan 2179049,745
Lok'nStoreRichard Holmes22 Jan 2165949,992
Shield TherapeuticsHans Peter Hasler (ch)20 Jan 215959,000
U and I GroupRichard Upton10 Jan 006973,980
U and I GroupRichard Upton22 Jan 2171.5157,366
Sells    
CompanyDirector/PDMRDatePrice (p)Aggregate value (£)
AJ BellFergus Lyon (PDMR)21 Jan 214612,786,800
AJ BellCharles Galbraith (PDMR)21 Jan 214611,153,492
AVEVA GroupPeter Herweck19 Jan 213,813271,142
FergusonJames Cross (snr vp) *19 Jan 2190359,204
JD WetherspoonBen Whitley (fd)22 Jan 211,21325,473
National GridBadar Khan (US Pres.) *19 Jan 214,387131,610
NextFrancis Salway20 Jan 218,050363,860
WhitbreadMark Anderson21 Jan 213,169126,770
* Via American Depositary Shares