Wednesday tips round-up: Babcock International, Halma
Some of the frothiness has now come out of the share price of engineering support services firm Babcock International, making them a buy, says The Times’s Tempus. Investors are chiefly worried about the implications for its business of the looming elections. However, concerns regarding its exposure to public sector outsourcing or the potential fall-out from a Labour-SNP coalition on the nuclear Faslane base are both over-exaggerated.
Babcock International Group
519.00p
13:24 24/04/24
Electronic & Electrical Equipment
9,767.32
13:24 24/04/24
FTSE 100
8,091.21
13:25 24/04/24
FTSE 250
19,801.78
13:25 24/04/24
FTSE 350
4,446.35
13:25 24/04/24
FTSE All-Share
4,400.28
13:25 24/04/24
Halma
2,246.00p
13:24 24/04/24
Support Services
10,662.93
13:25 24/04/24
Another source of worry is the company’s recently acquired Avincis helicopter unit – with its exposure to the oil and gas industry - and whether the firm overpaid. But the company has talked down the potential risks for that unit. More importantly, the firm has an order book of £20bn. That means that 70% of expected revenue for the 2015-16 financial year is already in the bag. The stock, which sells on 15 times earnings, after having at one point changed hands at almost 18 times earnings, now offers a more reasonable valuation, Tempus explains.
Some brokers have lost sight of Halma’s enviable track record. The company has raised dividends by 5% or more for the last 35 years. It has also typically managed to achieve an annual organic rate of growth of 6%, augmented by well-chosen bolt-on acquisitions. Analysts at JP Morgan Cazenove are concerned that the firm will find it increasingly harder to replicate those successes given its presence in the oil and gas sector, from which it derives 11% of its sales.
However, the products it sells in that space are safety-critical. A prime example are the corrosion monitors manufactured by the US firm which it bought in the summer. True, the shares are not cheap but they are worth it in the long-term, Tempus believes.