Forget past performances – it’s new contracts that matter now

Elizabeth Fournier
YESTERDAY, shares in support services firms G4S and Babcock went on two rather different journeys. G4S rose almost four per cent after shaking off Olympic embarrassments and growing revenues excluding acquisitions by 5.5 per cent, while Babcock slumped by the same amount despite a 13 per cent rise in profits.

But look a little closer and the figures tell a different story. Since this time last year G4S’s share price is up just 7.8 per cent, marginally outperforming the FTSE 100 over the same period. Babcock is up 37 per cent.

The firms may have distinct operating areas – Babcock focuses on engineering support while G4S is a security specialist – but ultimately each relies on its bid pipeline to give investors visibility on future performance.

G4S, hardly the government’s darling at the moment despite the state accounting for 13 per cent of revenues, is hanging out for imminent news of prison privatisation tenders. The firm is bidding on contracts that could be worth up to £2bn, but after the Olympic disappointment a win is unlikely to be priced in.

Babcock, in the meantime, is benefitting from an outsourcing boom as state budgets are cut, and expects orders to keep flowing in from key defence markets including Canada, Australia, Brazil and the Middle East.

Yesterday’s promise that it is securing preferred bidder statuses will help, but investors have come to expect so much that they’ll be waiting for contracts to be signed before buying into the firm’s £13bn pipeline.

While G4S’s outlook is more uncertain, there’s no reason to suspect Babcock will stop impressing.