Bloomberg News

Babcock International Stock Falls on Government Contracts

November 06, 2012

Babcock International Group Plc (BAB), the engineering partner helping design the U.K.’s future nuclear submarine, fell the most in more than a year after reporting an order-backlog decline as contract awards have slowed.

Babcock dropped as much as 4.4 percent to 945.5 pence, the steepest intraday decline since Aug. 18, 2011, and was trading down 3.5 percent lower at 10:26 a.m. in London, valuing the company at at 3.44 billion pounds ($5.5 billion).

Underlying pretax profit from continuing operations in the six months through September rose 13 percent to 142.7 million pounds, London-based Babcock said in a statement today. Analysts surveyed by Bloomberg had estimated 145.6 million pounds. Orders on-hand fell 3.8 percent from the beginning of the fiscal year to 12.5 billion pounds, it said. The company said it’s “confident” of meeting its forecasts.

“The numbers are fine, but the shares had risen on some expectation of an earnings upgrade,” said Robin Speakman, an analyst at Shore Capital with a buy recommendation on the stock. “The reality is, it is perhaps a bit early.”

Babcock said the bid pipeline, or contracts that the company is targeting, has increased to 13 billion pounds from 9.5 billion pounds six months ago. Deals among those projects could see a shift in Babcock’s earnings, with nuclear and asset management becoming more important as U.K. Defense Ministry activities wane, Chief Executive Officer Peter Rogers said.

Pipeline ‘Plenty’

“There is plenty in the pipeline which we expect to be awarded in the next six months,” Rogers said in a telephone interview. Those contract awards should cause the backlog to surpass 13 billion pounds by the end of the year, he said.

Some government decisions have been slower to materialize, partly because authorities are being more thorough with tenders after a planned shift of the West Coast rail franchise to FirstGroup Plc (FGP) from Virgin Trains was abandoned following technical flaws in the bid process, Rogers said.

“There has been a bit of a Virgin train effect, with people being very careful,” the CEO said. “That has exacerbated the slowdown a little bit.”

Babcock has been exploring new business opportunities in markets such as the Middle East and Brazil. Rogers said he expects to win contracts in the Middle East in the next 18 months to make good on a commitment made more than three years ago to grow in that market.

The company is exploring a bid for a naval dockyard program in Brazil, Rogers said. Although Babcock has identified a partner for the project, “we are still not certain it is something we will bid for,” he said.

To contact the reporter on this story: Robert Wall in London at rwall6@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net


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