Founded in 1891, Babcock International Group (BAB), together with its subsidiaries, provide engineering services for marine, land, aviation, and nuclear sectors in the UK and internationally. The company deliver a whole host of services from marine engineering services, including supporting naval fleets, commercial marine, engineering consultancy, weapons handling, equipment support, intelligence and cyber-security and technical training to defense and civil customers.
In the past 10 months this mid-caps share price has taken a significant tumble losing a further 45% of it’s value - it was already on a steady decline prior to this. With continuous headlines stating job losses, shipyard closures and profits lower than expected, it’s of no real surprise that price currently sits at eight year lows. Alongside this, it was recently confirmed that the defence giant are to take an additional £10m tax hit due to Brexit and the restructuring of the group’s aerial emergency services businesses (is anyone else bored of Brexit yet?!).
Now you may be wondering if there has been any positive news of late? Well just last week the company announced they’ve appointed former Royal Dutch Shell executive Ruth Cairnie their new chair. Cairnie will replace Mike Turner in July when he steps down at the AGM after 11 years in the role. She is currently the senior independent director of Associated British Foods and a non-executive at Rolls Royce and ContourGlobal. Could she help Babcock get back on board?
BAB has closed today (11/04) at 512.4p after being unable to close below 481.8p for multiple weeks. The intrinsic value of this stock based on its future cash flows is around 968p which would suggest it is currently trading at a heavily discounted rate. Babcock continue to be the Ministry of Defence’s (MOD) second largest contractor with a four year contract for the Royal Navy (RN) and the Royal Fleet Auxiliary (RFA) surface ship fleet being signed in February.
According to Hargreaves Lansdown this stock has five strong buy ratings. The most recent price target was listed on Monday from Jefferies International at 900p which isn’t too far off the intrinsic value previously mentioned.
Babcock’s current annual dividend income sits at a respectable 5.87% and could help to offset any potential downside risk. They have an annual growth rate of 19.8% which although sits below the commercial services sector at 27.8%, far outweighs the market and low risk savings which are 11% and 1.2% respectively.
I hope this report was a little shorter than the last and if you’d like to leave feedback or your opinion that’d be great!