Shares in engineering services provider Babcock International Group PLC (LON:BAB) hit a 52-week low after it reduced revenue expectations.
The company, which operates in a sector that has been out of favour since it became evident that rival Carillion was in deep trouble, saw its shares fall from 652.6p overnight to 604p this morning before recovering to 633.4p – down 2.9% on the day – after a mixed trading update.
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Babcock said it expects underlying earnings for the year to the end of March will be in line with guidance, while the group’s margin is expected to be higher than previously forecast, but revenue is now expected to be slightly lower than previously expected.
Babcock predicts full-year revenue will be between £5.3bn and £5.4bn, up 2-3% year-on-year.
Babcock said it was continuing to experience tough trading conditions in the offshore and oil & gas sector, and a slow-down in the volume of defence sector orders.
On top of that, Babcock is experiencing slower mobilisation on the marine systems support partner (MSSP) equipment and engineering management contract for the Ministry of Defence.
Given the market’s concerns about debt-burdened engineers following the collapse of Carillion, Babcock calmed a few nerves by reporting that net debt is expected to reduce to 1.7 times annual earnings before interest, depreciation and amortisation.
READ: Babcock International says current trading in line with its expectations, and full year outlook unchanged
Cash conversion for the current fiscal year is expected to be in line with guidance.
Broker Liberum said it was a “reassuring statement on pipeline, earnings and cash flow” as it reiterated its ‘buy’ recommendation, saying the stock is “too cheap to ignore”.
“The order book is stable at £18.5bn and the pipeline has increased from £12bn to £12.5bn. The Government’s 10-year Equipment Plan is not affordable, according to the NAO,” Liberum said.
“At Marine we expect a bigger revenue decline given the drag from Carrier and slow start on MSSP. At Aviation, we assume 9% revenue growth YoY [year-on-year]. At Nuclear, we assume 3% revenue growth for the forecasting horizon. At Land, we expect DSG and South Africa to slow in H2, with an adverse impact from NSCR resulting in lower YoY sales growth,” Liberum added.