Babcock International impresses as Avincis lifts interim profits
Interim results from engineer Babcock International impressed investors after profits, earnings and cash hit or beat targets.
Babcock International Group
502.00p
16:40 19/04/24
FTSE 100
7,895.85
16:59 19/04/24
The FTSE 100 company, which on Wednesday confirmed a major contract with the Ministry of Defence, lifted pre-tax profits 32% to £187m on revenue up 24% to £2.1bn in the six months to 30 September.
Group earnings per share were up 11% to 31p and the half-year dividend was hiked 10% to 5.5p per share after better-than-guided cash generated from operations of £216.8m, which represented a cash conversion rate of 115%.
Chief executive Peter Rogers said all existing core businesses continued to move forward and markets remained "buoyant", expressing confidence of delivering results in line with expectations.
He said the £1.6bn acquisition of Avincis "fulfilled our expectations" after making an excellent start under Babcock's ownership.
Indeed, excluding contributions of £236m and £52.5m of revenue and profit for four months from the London-headquartered helicopter business would have meant group underlying revenue and operating profit grew 10%.
Debt, after the acquisition saw £705m of Avincis' debt added to the balance sheet, was increased to £1.29bn, 2.3 times earnings before interest, tax, depreciation and amortisation (EBITDA).
Progress was made to refinance the acquired debt at improved rates and in October the group issued a €550m bond as part of this restructuring, following the £1.1bn rights issue at the time of the purchase.
The order book increased 60% to £18.5bn, with £2.0bn apiece from Avincis, Magnox and MSDF, giving 94% visibility for 2015, although the pipeline fell from £17.5bn to £13.5bn, despite the inclusion of £1bn from Avincis, partly due to the failure to win any contracts from the UK Defence Infrastructure Organisation's Next Generation Estates Contracts (NGEC) programme and partly also due to the conversion of pipe-line to orders.
Broker Liberum said the results were better than its estimates but pointed to some under appreciated headwinds and retained its 'sell' recommendation.
"Carrier sales peak this year and the revised gain share is negative for margins. The loss of NGEC creates at least a £10m head-wind.
"The Defence joint venture margins are unsustainable. MSDF [Maritime Support Delivery Framework] margins are likely to be lower, at least initially. Cash conversion is likely to be weaker, particularly post Avincis."