Komatsu100
24 May 2018
The Times 24/05/18 [link] is the dog that didn’t bark. Babcock is the large government contractor that has been causing the analyst community the three-pipe problem of why it hasn’t followed other outsourcing giants — Capita, Serco, Mitie, Interserve and, of course, Carillion — into financial crisis. The reason this dog didn’t bark, as Sherlock Holmes would have deduced, is that it didn’t have to.Many analysts have been wondering for years when Babcock’s “moment” of crisis would come.Babcock has long argued that to link it with lower-margin outsourcers who clean the floors at public sector offices or do back office government number-crunching is a misreading of the facts.Instead, Babcock provides engineering services that keep the air force flying and the navy’s boats floating. Its margins are 10 per cent-plus compared with the sub-5 per cent, or indeed minus in places, of others in the support services sector.It stays close to its main client, the Ministry of Defence, to ensure that it doesn’t have major contractual blowouts. Its only exposure to the cost-cutting Cabinet Office is work for the Nuclear Decommissioning Authority, which is also high-end engineering and pays high margins.It could be smart for Babcock to get itself reclassified in engineering. So far, this advice has been ignored.Yesterday, Babcock confounded the doom-mongers again. It posted an 8 per cent rise in annual pre-tax profits to £512 million in the year to March 31, while revenues hit £4.6 billion. Both were records, albeit not wholly unexpected. The City liked the cash conversion — an issue that has brought down so many in support services — which enabled it to cut debt 5 per cent to £1.1 billion. Analysts also liked the £31 billion order book and bid pipeline.Babcock runs boatyards such as Devonport in Plymouth and Clyde in Scotland for the MoD, and at Rosyth it has helped to build Britain’s two new aircraft carriers. It also looks after and helps train the British Army and runs airbases, maintains aircraft and trains pilots for the RAF.Its pipeline of work includes the design, build and maintenance of the new Type 31e frigate; training RAF and Royal Navy pilots in fighting; £500 million work at the new Hinkley Point C nuclear power station; and delayed electrification work with Network Rail.Crucially, the pipeline also includes bidding for contracts to train Canadian and Spanish air force pilots. This is the sort of work that will wean Babcock off its dependence on the UK MoD and hit its target of 30 per cent of income from overseas. The Australian military and South African mining industry are already fertile grounds for Babcock and it is training French air force pilots.Stephen Rawlinson, an independent sector analyst, admits to being puzzled by Babcock. He wonders about the sustainability of those 10 per cent margins, worries about debt still at 1.6 times ebitda profits and says the good cash conversion gets eaten pretty quickly by having to service debt, pay into the pension funds, pay HMRC, and keep up capital expenditure and invest in technology.Though the shares lifted 19½p to 784p yesterday, Mr Rawlinson believes Babcock’s stock profile “is more typical of a flawed building contractor with a chequered history than an engineering services company”.From £10.91 18 months ago to 631p during the fallout from the Carillion fiasco this year, Babcock shares have now put on about 25 per cent in three months. Babcock has not been an elementary case for the City to crack, but with a strong dividend record, the signs are it may be a dog worth going for a walk with.ADVICE BuyWHY Babcock has been unfairly tarred by other contractors’ misdemeanours. The shares have fallen too far
nk1999
23 May 2018
From III "................. The company provides technology, infrastructure management and specialist training across sectors including marine, aviation and nuclear.Jefferies said the annual results contained many positives, none more so than free cash flow (FCF) coming in 30% higher than expectations.The broker, which has a 950p price target, added: "In a sector driven by FCF yield, this should sustain Babcock's recent share price rally."The bid pipeline increase also provides comfort regarding revenue outlook during a period of debate regarding UK public sector and MoD budgets."With a price target of 1100p, Liberum said Babcock was one of its key "buys". It pointed out today that a projected 2019 PE multiple of 8.6x was at a 40% discount to the sector average of 13.5x.They added: "Babcock remains cheap, despite our view that the reasons for caution are beginning to abate."[link]
Rhigos
23 May 2018
Re: Results Our Haven,Agreed good results. SP was up nearly 6% this morning but now only up 2.8%. I guess some investors taking advantage of rise to sell this share, that has been under performing since Feb 2014. Thankfully it has started to pick up since Feb this year. It needs to go up another 20% before I show any CG on them. A lot of patience needed with BAB!
Our Haven
23 May 2018
Results Good results shows the strength of Babcock in their specialist areas. Not to be confused with other public sector providers!
gamesinvestor
16 May 2018
Re: Is Babcock the Next Carillion? "Foll says. She points out that Babcock tends to only bid for contracts where it is the sole bidder, like the decommissioning of nuclear submarines.“They are the only company in the UK capable of doing that,” she explains. “Therefore the margins they’re making are more like 10%, whereas the general contractors tend to be aiming for between 1% and 3%."If only this were true, once the creative accounting becomes clear. Babcock is probably very little different than the others in it's susceptibility to complex accounting trickery.The trouble is, you only find this out on the morning that the shares have tanked.Being the sole bidder, doesn't guarantee a successful outcome - it could also be that others find it unattractive to do so.The debts, operation costs etc are such at Babcock, that it's possibly uninvestable, or at the very least a lower quality investment than many other choices.Games
Komatsu100
08 May 2018
Is Babcock the Next Carillion? [link]
valeite
13 Apr 2018
breaks in the cloud? RBC Capital says BAB to outperform and targets £10 . a positive comment is a welcome change to the gloom we've endured here
Kenj2
16 Feb 2018
iii company assesment [link]
nk1999
07 Feb 2018
Liberum "Babcock ‘too cheap to ignore’Liberum believes Babcock (BAB) is ‘too cheap to ignore’ despite the engineering group trimming its revenue forecasts yesterday.The company said yesterday that despite the dent to revenues it would meet its earnings forecasts after cost savings helped it to increase margins.Analyst Jo Brent maintained his ‘buy’ rating and £11 target price on the shares, which fell 4.2% to 625.4p yesterday.‘A 2018 free cashflow yield of 7% is attractive for a company which is thought to be a poor cash generator,’ he said.He added the company had reassured over its pipeline of work. ‘The pipeline has increased from £12 billion to £12.5 billion, and management says visibility is good for 2019.’The shares were down 4% at 626.2p yesterday."
contrarianstyle
05 Feb 2018
Re: numis says buy read through research over the weekend and the fears of this being another capita/carrillion could be overblown and bought a small holding to start off with when they tanked this morning
nk1999
23 Jan 2018
Re: numis says buy "Market fears over Babcock are overdone, says NumisShares in engineering support services company Babcock (BAB) have had a difficult couple of years but Numis believes market fears are ‘overdone’.Analyst James Beard initiated coverage with a ‘buy’ recommendation and target price of 980p on the shares, which were trading at 717.3p yesterday.‘Babcock’s shares endured a challenging 2016 and 2017, as concerns over slowing organic growth, the performance of Avincis post-acquisitions, and a succession of warnings and balance sheet issues at other outsourcers led to a significant de-rating of the shares,’ he said.‘We believe that the market’s concerns are overdone, albeit there are few short-term catalysts for the shares.’"(From Citywire)
Our Haven
22 Jan 2018
Re: numis says buy Valeite, would be great to be at that price, I would even have a profit!
valeite
22 Jan 2018
numis says buy ....and targets £9.8 .well it gives us a bit of hope
valeite
21 Jan 2018
PFI fallout interesting article in todays Times saying that construction companies and outsourcing comps are no longer prepared to take fixed price contracts after the collapse of Carillion .£600bn infrastructure prog is struggling to attract bidders .I say no wonder the market has gone cold on this sector.....poor risk/reward profile for shareholders with JC waiting around in the background
Our Haven
17 Jan 2018
Re: Happy with Gentle Rise Hangover2I would assume that the government departments will have to go through all the usual tender processes which will take a considerable amount of time to conclude. Only if say Babcock were jointly appointed could they ask them to take on the additional work and even then they can be open to criticism.However if Babcock can bid afresh on some of the contracts at a profitable price and win the contract then we will benefit. Interesting to see if anyone can pick up profitable contracts from Carillion by buying that part of the business. No one would want the lot as it is a sure way to lose money with the contracts they have.
