It may seem odd that Babcock’s shares are up by quite so much when the firm is flagging £1.7 billion of asset write-downs, more than had been rumoured, but plans for £400 million of asset disposals and a clear statement that the firm will not need to raise money from shareholders are raising hopes that the worst may be over for the embattled support services group, says Russ Mould, AJ Bell Investment Director.
“Chief executive David Lockwood’s contract profitability and balance sheet review may offer a nod, unintentionally or otherwise, to the report produced by the Boatman Capital in 2018 which criticised Babcock as ‘opaque, needlessly complex, needlessly expensive and prone to errors’ and alleged over-valuation of contracts. But today’s announcement, and the promise of more details alongside the full-year results, may give shareholders a clearer view of how the firm intends to move forward.
“Nor should it be forgotten that Babcock’s shares lost half of their value between the release of two papers by Boatman and last autumn. Even the recent rally leaves the shares trading no higher than autumn 2006.
“However, this at least means that expectations are a lot lower, especially as profitability has tumbled in the past two years, the order book has sagged and the dividend been cut.”