Bottom Line: An ambitious play for expansion not a call to international rescue

 
Marc Sidwell
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THE possibility of a tie-up between FTSE 100 stalwart Babcock and helicopter transport specialist Avincis is continuing proof of the scale of Babcock’s ambition.

The engineering support services group has been looking to expand internationally in recent years and this looks a potentially smart step in that growth process, opening up new options in European defence contracts in countries such as Spain and Italy.

An excellent set of half year results in mid-November certainly showed no reason to deviate from Babcock’s plans. Profit before tax was £141.7m for the six months to 30 September 2013, up 17 per cent on the year before. Revenue was up nine per cent over the same period excluding foreign exchange fluctuations. With a bid pipeline of around £15.5bn, analysts hailed its performance as best in class, and a 10 per cent increase in the interim dividend was a cheering Christmas present for shareholders.

Babcock has plenty of opportunities at home, notably for its nuclear division Cavendish – eyeing both EDF’s new nuclear plant at Hinkley Point and the £7bn contract to oversee old sites for the Nuclear Decommissioning Agency. But it is also looking overseas. With 84 per cent of custom currently coming from the UK, there’s plenty of room to grow – and the firm has identified almost £3bn annual worldwide opportunities in defence and security alone. The Avincis group works in 10 countries around the globe, taking three fifths of its revenue from Spain and continental Europe, and sounds a natural fit with Babcock’s desire to look further afield. Having handily outperformed the FTSE 100 since the summer, there’s definitely no need of a search and rescue mission here.