Babcock lifted by Liberum upgrade
Engineering support and outsourcing company Babcock got a boost on Wednesday as Liberum upgraded its stance on the stock to ‘buy’ from ‘hold’, maintaining its 960p price target.
The brokerage attributed the upgrade to the fall in the share price and attractive metrics relative to the peer group.
In addition, it noted the business should deliver 6-7% revenue growth in 2018, which makes it too cheap to ignore.
The brokerage said the company trading statement in February guided to an in-line performance. It expects total group revenue of £5.1bn in FY17 versus £4.8bn in FY16 at a steady margin of 11.4% compared to 11.1%.
Liberum forecasts total profit of £576m in FY17 versus £540m and maintains its estimate for FY17 underlying earnings per share of 80.2p compared to 74.3p. It reckons the dividend will be upped by 8.1% to 27.9p.
The brokerage noted that at the seminar, management re-iterated overall guidance of 6-7% organic revenue growth, and it expects that around 1.5% growth will come from the contracts on the Met Police, Qantas and FOMEDEC (French aircraft training).
“We believe that this growth is achievable and makes Babcock stand out in a market bereft of growth.”
Liberum added that issues around earnings quality, Ministry of Defence pressures, pension, Avincis, and O&G exposure are now well understood.
At 0900 GMT, the shares were up 1% to 903p.