Shares in Babcock (BAB) dropped this week after fresh bad news led to an analyst downgrade. The group announced the closure of its Appledore shipbuilding facility late last week.
There was little investor reaction initially after Babcock released news of Appledore’s closure on 1 November, but the shares plunged 6 per cent after RBC Capital Markets downgraded them from outperform. Despite much media coverage, the site generated just £24m of the group’s £5.4bn adjusted revenues in the 2018 financial year. However, it may have been an inflection point for investors worn down by a persistent stream of negative – if minor – newsflow.
There is plenty to like about the group’s performance. The order book is at around £18bn, with a further £14bn pipeline. It has continued to win contracts and trades at seven times forecast earnings, well below its five-year historical average of 12 times. However, in recent months it has been dogged by concerns over the wider outsourcing sector – spurred on by the collapse of Carillion – and disappointing revenue performance following spending delays at the Ministry of Defence.
Most recently, Babcock was roundly criticised in a report from Boatman Capital Research – a previously unknown company with no other research publicly available. It was met with scepticism – one analyst told Investors Chronicle to take it with “a bucket of salt”, but coming just a few months after the group cut revenue expectations, it still pushed shares down 4 per cent.
