Shares in defence contractor Babcock International PLC (LON:BAB) got a boost today as broker Liberum Capital upgraded its rating, saying it thinks “valuation is now compelling.”
In late morning trading, Babcock shares on the FTSE 100 index were up 0.7%, or 6.5p at 900.5p.
In a 28-page note to clients following Babcock’s recent in-line trading update, Liberum’s analysts raised their stance on the firm to ‘buy’ from ‘hold’ with an unchanged share price target of 960p.
They said: “Issues around earnings quality, MoD pressures, pension, Avincis, and O&G exposure are now well understood. Less known, organic sales growth and free cash flow should improve in FY 2018.”
The analysts expect Babcock to see revenue and margins grow at its Nuclear operations, while its Avincis helicopter business is trading well, and the issues in the oil & gas sector are now immaterial and not necessarily negative.
They pointed out that defence spending is increasing, while outsourcing has played out in Babcock’s Marine-based operations it has not yet so in Land, and they think there is scope to “Internationalise the business.”