Babcock shares wobble as investors split on performance
Engineering and defence giant Babcock has seen its share prices wobble in morning trading, as investors were split over the group’s first half of the year performance.
The FTSE 100 company saw revenue shoot up 7 per cent to £2.54bn, while profit before tax climbed 19 per cent to £201.1m, bolstered by strong performances from the company’s nuclear and marine arms.
Cash flow rocketed 48 per cent to £141m, while net debt shrunk to £56m.
The defence firm also reduced its contract backlog to £9.9bn from £10.4bn, reflecting a large order intake in both domestic and international markets.
Shaky shares
However, the share price wobbled in early morning trading, tumbling by 6 per cent to 1,077p, before clawing back up slightly.
It plummeted once more by 3.01 per cent to 1,096p during the late morning.
Dan Coatsworth, head of markets at AJ Bell, pinned the unpredictable share price to the different investor’s reaction to the results.
Coatsworth said: “The movement up and down with Babcock’s share price may be down to different types of investors trading the stock.
“Certain existing investors could be trimming their positions because the company didn’t upgrade full-year guidance, so they might take the view there are no near-term catalysts to take the shares higher.
“Others might have spotted a pullback in the shares and thought the results were solid enough to warrant buying the stock.”
For investors who see potential in the stock, Coatsworth credited this to Babcock being the third best performing share on the FTSE this year to date, with shares up 112.5 per cent, while the company’s nuclear expansions could also “energise investors”.
Other analysts were also unconcerned about the shaky shares, marking the firm as one of London’s “consistent out performers”.
Mark Crouch, market analyst at eToro, said: “Babock’s latest results will make even the most hardened defence investors sit up a little straighter.
“In a business better known for long-cycle contracts and cautious guidance, it’s confirmation that Babcock is well and truly firing on all cylinders.”
Pressing the nuclear button
The group’s performance was primarily driven by growth from its largest division, nuclear, which saw a 14 per cent rise in revenue to £9.8bn.
This was credited to the ongoing upgrades to the UK’s nuclear submarine infrastructure and the signing of a three year £114m contract to dismantle an out of commission submarine.
In its civil nuclear division revenue was bolstered by the acceleration of work at the Hinkley Point C nuclear power station.
Aviation revenue also soared 26 per cent to £201m, due to fresh international deals and an increase in scope to UK military contracts.
The marine arm, which accounts for 32 per cent of sales, saw revenue inch 6 per cent, with growth from the UK’s satellite program offset by reduced ship sales and support work in the UK.
Land revenue also dipped 10 per cent, primarily due to a fall in work and sales for its civil business after Africa reduced its mining equipment sales and a number of rail projects were completed.
Dividend hike
Its performance prompted the Board to hike its interim dividend 25 per cent from 2p to 2.5p, and expects to complete its £200m share buyback programme by the end of the year, with £49m returned in the first six months.
Basic earnings per share also increased from 25.7p to 33.7p.
The group has maintained its full year expectations, predicting average revenue growth and an operating margin of 8 per cent.
Chief executive, David Lockwood, said: “Good momentum was underpinned by consistent delivery for our customers against a background of supportive market dynamics.
“We are on track to achieve our expectations for the full year and are pursuing exciting opportunities for sustainable growth and margin expansion.”