Heathrow win keeps Babcock orders on track

ENGINEER Babcock said yesterday it was eyeing “significant” new outsourcing activities, as market conditions across its businesses remained buoyant.

In a trading statement yesterday, the blue-chip engineer said bidding activity remained high thanks to several investment programmes in its civil and military markets.

Recent contract wins have bolstered the group, which operates in the marine, defence and support services sectors. Last week, it was named preferred bidder on £440m worth of contracts at Heathrow and for British Airways, and prior to that it was named preferred bidder on a £100m weapons handling contract.

As of the end of March, the bid pipeline inched up to £15.5bn – from £14bn at the end of January – with the potential for a new defence services contract in conjunction with Germany’s DHL providing the biggest boost.

The order book is stable at around £12bn, Babcock said, with £1bn worth of contracts won since the half year results in November – £440m of which comes from last week’s Heathrow deal.

Babcock added that it was on track to hit its full-year targets, and said its results would show “strong progress” on the previous year.

“The scale of our order book continues to provide excellent visibility of future revenue streams across the group,” Babcock said in the update.

“This position is further strengthened by the medium to long-term growth opportunities which continue to flow into tracking and then into the bid pipeline.”

Analyst Views | What did you think of Babcock’s trading update?

MIKE ALLEN | PANMURE GORDON

A pre-close statement from Babcock confirms that it continues to trade in line, with net debt falling as anticipated. The order book has remained static, albeit with good progress being made behind the scenes, with the bid pipeline advancing reflecting good medium-term visibility.

CHRISTOPHER BAMBERRY | PEEL HUNT

Babcock has issued an in-line update and the pipeline has increased further to £15.5bn. While we still find the business’s fundamental strengths very attractive and see earnings upgrade potential over the medium term, we believe that the shares will continue to pause for breath.

ROBIN SPEAKMAN | SHORE CAPITAL

Contract wins since the interims last November have been sluggish with just £1bn entering the order book. Still, Babcock benefits from significant forward visibility and strong underlying cash generation from its order book – we expect a return to the acquisition strategy over the next year.