Seneca Investment Managers today announced it has invested in engineering support company Babcock International, which has seen its share price slide over the last year as other companies in the sector have issued profit warnings.
Seneca, which seeks to invest in companies which it believes are undervalued, said that Babcock had been “tarred with the same brush” as support services companies such as Capita, Interserve and Mitie.
Capita, which is perhaps best known for its role in the London congestion charge, saw its share price plummet last month as its revenue slid and it revealed it had been stripped of a Ministry of Defence contract. Interserve's shares were down more than 50 per cent as it described trading as “disappointing”, while Mitie unveiled a plan to slash 480 jobs.
“We believe [Babcock] is fundamentally different to others in its sector. It has a very skilled workforce, and these workers are increasingly in short supply,” said Seneca fund manager Mark Wright.
“The company operates in complex, highly regulated and often secretive industries, so the barriers to entry are high. Contracts are long term in nature and allow gains and pains to be shared with customers.”
Babcock's work includes refitting all of the UK's nuclear submarines and 75 per cent of its naval ships, maintaining the London Fire Brigade's fire engine fleet, and operating the search and rescue and air ambulance fleets.
The business also issued a trading update last month, shortly after Seneca invested, which confirmed trading was in line with expectations and caused its share price to lift six per cent.
Wright said this was “an indication of the value opportunity this holding represents”.
Analysts at Liberum noted the order book and pipeline of opportunities were stable, but added that there could be challenges ahead regarding the willingness of European customers to engage with Babcock after Brexit.
Babcock's shares were up a marginal 0.18 per cent at the close.