Babcock (BAB) returns to profit after Covid losses
By Rob Griffin
10:15, 7 December 2021
UK defence contractor Babcock International is back in the black after enduring heavy losses last year.
The company made an operating profit of £75.4m ($100m) for the six months ending 30 September 2021 – compared with losses of £785.3m for the corresponding period in 2020.
It also insisted its turnaround strategy was on track, with roughly £400m of disposals to bolster the balance sheet having already been announced.
Caution over Omicron
In a statement, the FTSE 250 firm said its new operating model was on track to deliver savings of approximately £20m in the current financial year.
However, it admitted to caution about its ability to maintain activity levels and recover all costs given the uncertainty from new Covid-19 variants and varied government responses.
The company’s stock price had edged 0.5% to 308.3p by 10am on the London markets.
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Simplified group
According to chief executive David Lockwood, the portfolio will continue to be aligned to support the company’s capital allocation priorities and future growth.
“The ongoing implementation of our new operating model means Babcock will be a simplified, more focused group,” he said.
He said Babcock was pursuing “important growth opportunities”, with significant contract wins in military communications, but continued to manage inflationary and supply-chain pressures.
“The board believes the actions we are taking will enable the group to take advantage of the many opportunities ahead of us, leading to improved cash generation and profitability in the medium term,” he added.
Financial highlights
Babcock also reported revenue of £2.2bn for the half-year – up from £2.05bn in the same period last year – with earnings per share coming in at 10.3p.
Its contract pipeline stood at £10.9bn at the end of September, which includes the Future Maritime Support Programme contract of roughly £3.5bn that runs to March 2026 and continues the company’s support work for Royal Navy ships, submarines and naval bases.
“We believe our new strategic focus and operating model will significantly improve the group’s profitability, and most importantly its cash generation, over the medium term,” added the statement.
Transition year
Joe Brent, an analyst at Liberum, has a ‘buy’ recommendation on the stock, believes its valuation provides an interesting entry point and that the full 2022 financial year will be a transition year.
“Management has conducted a strategic review that will reshape the business, restore confidence in the accounts and improve underlying cash generation,” he said.
He added that Babcock was “an attractive strategic asset” that could appeal to either trade or private equity.